Thursday, April 2, 2009

A Closer Look At the ISM Data

Here is a link to the report:

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The rapid decline in manufacturing appears to have moderated somewhat, as the PMI remains in the mid-30s for a third consecutive month. While the PMI is slightly higher in March, the New Orders Index offers greater encouragement, as it rose above the 40-percent mark for the first time in seven months. The Production Index showed no benefit as yet from the improvement in new orders, as it continued to decline at a rate similar to March. The rate of decline in the Employment Index slowed slightly, and the same held true for the Prices Index. A special question was asked with regard to the Economic Stimulus Package, and five of the 18 manufacturing industries expect to derive some benefit from the stimulus." (See Special Questions section at the end of this release.)

So -- the bottom line is things might be moderating. The index is in the mid-30s for the third consecutive month. While there is no hard and fast rule about how many data points are required for a trend to exist, three points in the same area is obviously better than 1.

Let's look a bit deeper in the data.

* "We remain challenged to align our capacities with demand." (Nonmetallic Mineral Products)
* "Most of the international markets have been reducing inventory levels and they are forecasting improvements in the next 4 to 6 months." (Chemical Products)
* "Many pockets of improvement." (Electrical Equipment, Appliances & Components) "Still very slow. No stimulus package for manufacturing. Down 30 percent." (Fabricated Metal Products)
* "What we are feeling now is that customers aren't making their final payments on equipment that has already been shipped." (Machinery)

Anecdotal information provides a mixed bag of data. Some parts are challenged, but some are seeing "many pockets of improvement." While this is hardly a data series to hang your hat on as it were, there are bits of good news.

And then there is this:

New orders index

Mar 2009 41.2
Feb 2009 33.1
Jan 2009 33.2
Dec 2008 23.1

The index is increasing which is a very positive sign as it indicates buyers are starting to rev up their engines. Again I want to caution, this is only three months of data so we are hardly out of the woods. And the last month was not good as 6 showed increased but 10 showed decreases. But I also think calling this trend encouraging is warranted.

And then there is this:

Overall production index

Mar 2009 36.4
Feb 2009 36.3
Jan 2009 32.1
Dec 2008 26.3

This has also been growing over the last three months. However, the same caveats apply to this number as the new orders number. In the latest report only two industries showed an increase in production while 12 showed a decrease

Overall things are still depressed. But the new orders and production trends over the last 4 months are encouraging.