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 11/3/08 For Oct 2008 | ||||||||||||
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Highlights
In deeply recessionary results, the ISM's manufacturing index fell to 38.9 in October, down nearly 5 points from September and far below the break-even 50 level to indicate that a much greater share of purchasing managers are reporting weakness than strength. Readings are alarming, down to levels last seen in the early 80s. Order data have come apart, pointing to quarter-to-quarter contraction for the manufacturing sector: new orders 32.2 Oct. vs. 38.8 Sep. and backlog orders 29.5 vs. 35.0. Even export orders, which had held solidly above 50 and had been the report's only highlight, fell 11 points to 41.0 in a reflection of dollar strength and weakening demand from foreign economies. Production fell nearly 7 points to 34.1 with employment in lockstep at 34.6 for a drop of more than 7 points. The drop in demand is backing up inventory where readings show pressure.
The prices paid reading confirms weakness in demand, down more than 15 points to 37.0. The outlook for the manufacturing sector is definitely a concern for the whole economy, largely the result of weakness in domestic consumer demand. Keep a special watch this week for vehicle and chain-store reports as early indications point to similar trouble seen into today's ISM report. There was limited reaction to the report though money did move into Treasuries.
The Institute for Supply Management's manufacturing index in September fell to 43.5 from 49.9 in August. The September drop was very sharp compared to typical monthly changes. But the drop in the new orders index was even worse. New orders plunged nearly 10 points to 38.8 from 48.3 in a reading that points to sustained overall contraction in the months ahead. The prices paid index eased dramatically, confirming a drop in demand, to 53.5 from 77.0 in August.
ISM manufacturing index Consensus Forecast for October 08: 41.5
Range: 37.8 to 48.5
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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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