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Economy in Brief

ISM Factory Sector Index Strengthens; Prices Ease
by Tom Moeller  September 4, 2018

The ISM composite index of activity in the factory sector increased to 61.3 during August from 58.1 in July, which was unrevised. The latest level was the highest since May 2004 as each of the index components improved. A reading of 57.6 had been expected in the Action Economics Forecast Survey. During the last ten years, there has been a 74% correlation between the index level and q/q growth in real GDP.

The new orders reading increased to 65.1 after falling to 60.2 in July. The production figure improved to 63.3, its highest level since January, following a decline to 58.5. The inventories series rebounded to a five-month high of 55.4 from 53.3. The supplier deliveries index improved modestly m/m to 64.5. Its sharp increase from a low of 49.2 in February 2016 indicates significantly slower product delivery speeds.

The employment series improved m/m to 58.5 but remained below the high of 59.8 reached last August. Twenty-seven percent (NSA) of respondents reported improved hiring while ten percent reported fewer jobs. During the last ten years, there has been an 85% correlation between the level of the index and the m/m change in factory sector payrolls.

The prices paid index, which is not part of the overall index, fell to 72.1 (NSA), the lowest level since December. It remained well above the January 2016 low of 33.9 when just five percent of respondents reported higher prices and 37% reported them lower. In comparison, 51% of firms reported higher prices last month and seven percent indicated declines.

Amongst the other ISM series which are not in the composite, the export order series eased to a ten-month low of 55.2, down from February's high of 62.8. The imports index fell to 53.9, nearly the lowest level in nine months, but up from the December 2015 low of 46. The capital expenditure leadtime series rose to 144, its highest point since April.

The ISM figures are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Aug Jul Jun Aug'17 2017 2016 2015
Headline Index 61.3 58.1 60.2 59.3 57.4 51.4 51.3
 New Orders 65.1 60.2 63.5 61.8 62.2 54.5 52.3
 Production 63.3 58.5 62.3 62.0 61.0 53.8 59.3
 Employment 58.5 56.5 56.0 59.8 56.8 49.2 50.7
 Supplier Deliveries 64.5 62.1 68.2 57.4 56.8 51.8 50.8
 Inventories 55.4 53.3 50.8 55.7 50.4 47.5 49.4
Prices Paid Index (NSA) 72.1 73.2 76.8 61.7 65.0 53.1 40.1
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