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Economy in Brief

ISM Manufacturing and Prices Indexes Falter
by Tom Moeller  July 1, 2019

Factory sector activity remains under pressure. The ISM manufacturing index declined to 51.7 during June from 52.1 in May. It remained the lowest level since October 2016 and was below the expansion peak of 60.8 last August. The Action Economics Forecast Survey anticipated a reading of 51.1. Since 2008, there has been a 74% correlation between the index level and quarterly growth in real GDP.

Performance amongst the ISM index components continued to be mixed last month. The new orders reading was notably weak m/m. It declined to the break-even point of 50, the lowest level since December 2015. The supplier delivery series fell sharply to 50.7, indicating the quickest product delivery speeds since September 2016. The inventories index also weakened. It declined to 49.1 and suggested inventory decumulation for the first time since December 2017. Offsetting these declines, the production series rebounded m/m to 54.1, though it fell short of the January 2018 high of 65.5.

Also moving higher was the employment index to 54.5 from 53.7. Nevertheless, it remained below the August 2017 high of 59.3. An increased 26% (NSA) of respondents reported higher payrolls while a lessened 13% reported a decline. Since 2008, there has been an 84% correlation between the employment index and the m/m change in factory sector payrolls.

The prices paid series, which is not part of the composite series, dropped to 47.9. This was the weakest indication since February 2016 and remained below the high of 79.5 in May of last year. A lessened 20% of respondents reported increased prices while a greatly increased 24% reported lower prices, up from nearly none in March of last year.

Amongst other series in the ISM survey, the export index eased to 50.5 and remained significantly below the February 2018 high of 62.8. The order backlog measure held steady near a three-year low.

The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices from the Federal Reserve Vice Chair Richard H. Clarida can be found here.

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; further detail is found in the SURVEYS database. Commodity prices can be found in USECON as well as the CMDTY database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Jun May Apr Jun'18 2018 2017 2016
Headline Index 51.7 52.1 52.8 60.0 58.8 57.4 51.3
 New Orders 50.0 52.7 51.7 63.0 61.4 62.2 54.5
 Production 54.1 51.3 52.3 62.0 60.7 60.9 53.8
 Employment 54.5 53.7 52.4 56.4 56.9 56.8 49.1
 Supplier Deliveries 50.7 52.0 54.6 67.6 62.0 56.8 51.8
 Inventories 49.1 50.9 52.9 50.8 52.9 50.4 47.5
Prices Paid Index (NSA) 47.9 53.2 50.0 76.8 71.7 65.0 53.1
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