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 7/1/08 For Jun 2008 | ||||||||||||
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Highlights
Raw material costs are soaring in the U.S. manufacturing sector reflected in a rare 91.5 reading in the ISM's prices paid index for June, not a record but surpassed in 60 years of data only during the oil embargo of the mid-70s. Employment is the other major negative in the report, falling nearly 2 points to 43.7 to signal yet another contraction for factory jobs in Thursday's monthly jobs report.
Other readings point thankfully to stable conditions including a 49.6 level for new orders, down 1 tenth in the month but virtually at the dead-even level of 50 that indicates no month-to-month change. Export orders remain the standout reading in the report at 58.5 to further confirm that global demand is strong. Backlogs decreased slightly in the month but at 47.5 are no worry especially given exceptionally high backlogs already logged for aircraft. Delivery times are indicating congestion in the supply chain at the same time that manufacturers added to inventories in the month -- these are indications of active business conditions consistent with yesterday's regional report from Chicago. Yet the gain in inventories, especially a big jump in repondents' assessment of inventories at their suppliers, does suggest that inventories may be backing up.
The overall index, which is a composite of components, rose to 50.2, holding in its very narrow range but still the first plus 50 reading since January. Treasury yields first rose than dipped back in reaction to the report, which in sum signals continued flat conditions for manufacturing. But the extreme levels of costs are a major obstacle that may push the sector below the break-even level during the second half.
The Institute for Supply Management's manufacturing index also may be stabilizing near the break-even point as this ISM index rose 1 point in May to 49.6. New orders were little changed at 49.7 but up nicely from the 46.5 level in May that was indicating contraction. Exports were the main driver for orders, which was up 2 full points to a 59.5 level that easily leads all components. Employment remained weak, little changed at 45.5, indicating yet further month-to-month contraction. As other manufacturing surveys have been reporting, prices paid are astronomical, jumping to 87.0 from 84.5 in April, indicating that all but a small percentage of purchasers are reporting month-to-month increases in the prices they pay for raw materials.
ISM manufacturing index Consensus Forecast for June 08: 48.7
Range: 47.0 to 49.6
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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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