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 4/1/08 For Mar 2008 | ||||||||||||
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Highlights
The manufacturing sector continued to slip lower in March, according to the ISM index which came in at a sub-50 level of 48.6, up 3 tenths from February but still indicating month-to-month contraction. The index has now come in below 50 in three of the last four reports, the worst performance since the beginning of the expansion in 2003. New orders are definitely a concern at 46.5, down more than 2-1/2 points and pointing to further declines in the main index in the months ahead. But new export orders continue to be the stand out in the report, up slightly at 56.5 and reflecting demand centered in global infrastructure and boosted by the weak dollar. But order backlogs continue to contract, at 47.5 for a sixth straight sub-50 reading.
The worst news in the report are prices paid which jumped 8 points to 83.5 for its worst reading in nearly four years. Whether these pressures begin bleeding through to final goods is one of the biggest risks facing the economy. Supply chain readings showed mixed signals on inventories and a surprising slowing in deliveries. Employment edged higher but still remains below 50.
Markets reacted favorably to the report, largely because it managed to hold above fears for worse. But the results do point to a first quarter contraction for the manufacturing sector while the pricing data are certain to raise concern at the Federal Reserve.
The Institute for Supply Management's manufacturing index has been in negative territory for two of the last three months with the composite index slipping to 48.3 in February from 50.7 the month before. The outlook is not good as the new orders index has been below the break-even point for three months in a row and slipped to 49.1 from 49.5 in January. But the bright spot in new orders is in exports, with the export orders index still healthy at 56.0 in February, although down 2.5 points for the prior month. Inflation remains a problem with the prices paid index remaining elevated at 75.5, even though down 2.5 points from January.
ISM manufacturing index Consensus Forecast for March 08: 48.0
Range: 45.0 to 50.7
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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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