Tuesday, September 1, 2009

ISM: a very positive report with strings

The August ISM purchasing manager’s survey today reported that the manufacturing industry is now expanding, with a reading of 52.9%. Yeah!

There are strings, though: the optimism has not yet presented itself in the data quite yet. The index is a diffusion index, which is calculated from a pretty crude survey of manufacturing managers. They are asked how conditions have changed over the month, with answers being categorized according to improved, unchanged, or worsened (or something similar across each of the components).

But the reading above 50, 52.9%, does indicate that the managers surveyed (it does not control for firm size) are now weighted toward the view that the manufacturing sector is generally expanding.

Some responses to the survey:
  • "Production is picking up as demand [for] orders is being accelerated." (Nonmetallic Mineral Products)
  • "Demand from automotive manufacturers increasing thanks to 'Cash for Clunkers.'" (Fabricated Metal Products)
  • "In addition to improved business come the complications of a supply chain drained of inventory." (Paper Products)
  • "The sudden increase in customer demand, plus the low inventories held at services centers, is causing a shortage in the supply of raw steel." (Transportation Equipment)
  • "[It] appears customers' inventories are getting low, and they are cautiously placing orders." (Apparel, Leather & Allied Products)
The components of the survey are also improving, where those circled are very positive, i.e., conditions are improving at a quickening rate. Notably the employment index is still very low, however, consistent with the nonfarm payroll report, the labor market is contracting less quickly.

Still a ways to go before we can break out the champagne – I would like to see industrial production numbers to go along with the survey responses. And remember, expanding is what it is – all one needs is a little growth. From the bottom, that’s relatively easy to get.

Rebecca Wilder


  1. It's Sept. We're approaching another low point. We'll have to wait until Oct. to get our bearings.

  2. The ISM Deliveries index jumped to 57.

    This is one of the best leading indicators of interest rates, capacity utilization, and oil prices I know.

  3. Hi Spencer,

    You are right - that is a solid leading indicator. Thanks for the note! Would be interesting, though, to see if that holds up this time around. To my knowledge, the index is not controlled for industry mix nor firm size. I hope that is not auto-related, is what I am saying.


    And Flow5,

    How are ya? I agree, let's see more than one month of "expanding" manufacturing.