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Economy in Brief

ISM Index Jumps to Two-Year High; Prices Strengthen
by Tom Moeller  January 3, 2017

Manufacturing sector activity continues to strengthen. The ISM composite index of factory sector activity increased to 54.7 during December from an unrevised 53.2 during November. It was highest reading since December 2014. Expectations called for 53.8 in the Action Economics Forecast Survey. For all of last year the measure was little-changed at 51.5. During the last ten years, there has been a 75% correlation between the index level and the q/q change in real GDP.

Pricing power strengthened last month. The sharp rise in the prices index to 65.5 was to the highest level in over five years. Fully 38% of respondents reported higher prices while just seven reported them lower.

The new orders reading increased to 60.2, its highest level since November 2014. For all of last year, the orders index rose to an improved 54.7. Strengthened exports helped the orders' rise with the measure at 56.0, its highest since May 2014. The production measure strengthened to 60.3, also a two-year high, but the full-year reading of 54.0 was just slightly above 2014. Employment improved slightly. The reading of 53.1 compared to 52.3 in November and indicated the third consecutive month of expansion in manufacturing sector payrolls.

Holding back the rise in the overall ISM index was a decline in the supplier delivery measure to 52.9, indicating slightly swifter product delivery speeds. The inventory index also fell, but the sharp decline to 47.0 showed inventory decumulation at the quickest rate since May.

Amongst the sub-components, the order backlog measure held steady m/m, but rose for all of last year to the highest level since 2014. The imports index also was stable m/m, but for the full year fell to the lowest point since 2009.

The ISM figures are diffusion indexes where a reading above 50 indicates increase. The figures from the Institute for Supply Management can be found in Haver's USECON database. The expectations number can be found in Haver's AS1REPNA database.

Financial Vulnerability and Monetary Policy from the Federal Reserve Bank of New York can be found here.

ISM Mfg (SA) Dec Nov Oct Dec'15 2016 2015 2014
Composite Index 54.7 53.2 51.9 48.0 51.5 51.3 55.6
 New Orders 60.2 53.0 52.1 48.8 54.7 52.6 58.9
 Production 60.3 56.0 54.6 49.9 54.0 53.5 59.2
 Employment 53.1 52.3 52.9 48.0 49.7 51.0 54.4
 Supplier Deliveries 52.9 55.7 52.2 49.8 51.9 50.7 55.0
 Inventories 47.0 49.0 47.5 43.5 47.2 49.0 50.8
Prices Paid Index (NSA) 65.5 54.5 54.5 33.3 53.5 39.8 55.6
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