Econoday Report: ISM Mfg Index November 2, 2009

2009 Economic Calendar

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ISM Mfg Index

Released on 11/2/2009 10:00:00 AM For October, 2009

	Prior	Consensus	Consensus Range	Actual
ISM Mfg Index - Level	52.6	53.0	52.0 to 54.0	55.7

Highlights
Coincident and lagging indicators, not leading indicators, gave a big lift to the ISM's manufacturing index which jumped more than 3 points in October to 55.7. Employment, a lagging indicator, was a standout, at 53.1 for a nearly 7 point gain to indicate, at a plus 50 reading, that manufacturers actually added to payrolls in the month. The rise in the workforce is in response to output needs as the production index, a coincident indicator, rose more than 7-1/2 points to 63.3. Inventories, like employment a lagging indicator, also gave a big lift to the index, rising nearly 4-1/2 points to 46.9 as the destocking phase in manufacturing moves to a restocking phase. Price increases were steady in the month, showing little change at 65.0 vs. 63.5 in September. Delivery delays were also stable, at a moderate 56.9.

The major leading indicator in the report, new orders, showed month-to-month improvement but at slower rate for a second month in a row, at 58.5 vs. September's 60.8 and August's 64.9. The latest reading points to a lower month-to-month percentage gain in October for durable goods orders which jumped 1.0 percent in September. This is a major offset to other gains in the report, suggesting that forward momentum is not accelerating. But markets are definitely accelerating in reaction to the report, with stocks and commodities shooting higher, especially oil which has jumped more than $1 in immediate reaction to $78.

Market Consensus Before Announcement
The Institute for Supply Management's manufacturing index was little changed in September at 52.6 from August's 52.9. Importantly, it was still over 50, indicating that more purchasers are reporting expansion rather than contraction. The new orders softened a bit in September, but remained very positive and strong at 60.8—down from 64.9 in August. Prices paid continue to show upward pressure, coming in at 63.5 and down only marginally from 65.0 the prior month.

Definition
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. Why Investors Care

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.

Data Source: Haver Analytics

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