The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where readings above (below) 50 percent indicate an expanding (contracting) factory sector. Export orders, import orders, backlog orders and prices paid for raw and unfinished materials are also measured, but these are not included in the overall index. (Institute for Supply Management) Why Investors Care
| Released on 8/1/08 For Jul 2008 | ||||||||||||
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Highlights
Production and employment popped higher in the ISM's manufacturing report for July but, in an ominous reading, new orders fell nearly 5 points to 45.0 for the lowest reading since the 2001 recession. Backlog orders also declined, down 4-1/2 points to 43.0 for its lowest reading since early 2003. If there is good news it's that inventories remain thin, with the overall inventory index down more than 6 points to 45.0 and the customer inventory index, which asks respondents to assess inventories at their suppliers, down 8 points to 47.0. Perhaps because of thin inventories, manufacturers, at least in this survey, are adding employees with the employment index up more than 8 points to 51.9 for its best reading since April last year. But the reading contrasts with this morning's employment report where manufacturing extended two years of payroll contraction. Production is solid in the report at 52.9 vs. June's 51.5. The strength in employment and production helped keep the overall index steady at a dead-even 50.0 for the month.
Prices paid remain severely elevated at a little changed 88.5 in the month. But these pressures have been absorbed through productivity improvements and the paring back of workforces, and given the decline in orders as well as the rise in the overall unemployment rate, posting 5.7 percent this morning, there seems little risk that costs will be passed through to final goods.
There was no immediate to the report in the markets, though the decline in new orders, if repeated in subsequent reports, would point clearly to recession for the nation's manufacturing sector. One final note is that export orders remain positive, in fact remain the greatest plus in the report at 54.0 in July. Though here too, the news is at best mixed as the index is down 4.5 points from June.
The Institute for Supply Management's manufacturing index in June held flat but input price inflation soared. The overall composite index rose to 50.2 from 49.6 in May. The latest number is the first plus 50 reading since January. But raw material costs have been soaring in the U.S. manufacturing sector as the prices paid index in June reached a rare 91.5 reading. The June figure was not a record but has been surpassed in 60 years of data only during the oil embargo period of the mid-1970s.
ISM manufacturing index Consensus Forecast for July 08: 49.2
Range: 48.0 to 50.5
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The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession. |
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