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 9/2/08 For Aug 2008 | ||||||||||||
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Highlights
Production is holding up the manufacturing sector, the results of the ISM's August survey which shows a second month of little change, at 49.9 for the headline index vs. July's 50.0. Growth in production slowed slightly but still showed a plus 50-reading of 52.1. Employment dipped fractionally below 50 but is still probably a positive for the report, at 49.7 vs. July's 51.9. New orders improved slightly but are still on the low side, at 48.3 vs. 45.0. Backlog orders are definitely a weakness at 43.5, up 5 tenths but still well below 50.
A jump in customer inventories, up 7.5 points to 54.5, indicates that respondents think inventories at their suppliers are too high, no surprise given the weak order data. Supplier deliveries stabilized at 50.3 to show little change from July as did inventories at respondent firms, at 49.3. Prices paid continue to show severe pressure but did ease more than 11 points from July's astronomical reading of 88.5.
New export orders remain the biggest plus of the survey, at 57.0 for a three point gain and reflecting still strong foreign demand for capital goods. But current strength in the dollar, along with softening growth in foreign economies, put into question future strength in exports. The weak new order and backlog data also put into question whether gains in production and stability in employment can be extended into future months, not to mention whether the June and July surge in durable goods data will also be extended.
The Institute for Supply Management's manufacturing index held steady in July at the breakeven level of 50.0 compared to 50.2 in June. But looking ahead, 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. Prices paid remain severely elevated at a little changed 88.5 in the month. A dip in oil prices likely will help ease the prices paid index but the trend in new orders bodes poorly for the overall index.
ISM manufacturing index Consensus Forecast for August 08: 49.9
Range: 49.0 to 51.9
![[Chart]](chart.gif)
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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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