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Economy in Brief

ISM Factory Sector Index Moves Higher; Prices Strengthen
by Tom Moeller  February 1, 2017

The ISM composite index of factory sector activity increased to 56.0 during January from 54.5 in December, initially reported as 54.7. It was highest reading since November 2014. Expectations called for 55.0 in the Action Economics Forecast Survey. Data for the last two years were revised slightly. During the last ten years, there has been a 75% correlation between the index level and the q/q change in real GDP.

A stronger production reading of 61.4 led the composite index higher last month. It was the firmest level also since November 2014. The new orders, supplier delivery and inventory indexes also rose modestly.

The employment measure strengthened to 56.1 in January, its highest level since August 2014. Twenty-one percent (NSA) of respondents raised employment levels while 13% lowered them. Twelve months earlier, just 11% were raising employment. During the last ten years, there has been an 88% correlation between the jobs index and the m/m change in factory sector payrolls.

Pricing power is building. The prices paid index rose to 69.0 from 65.5 and reached its highest level since May 2011. Forty-four percent of respondents raised prices, while six percent lowered them. In January 2016, just five percent of firms were raising prices.

Amongst the sub-indexes, the new export series eased m/m to 54.5, but remained up from 47.0 where it stood twelve months earlier. The imports index slipped to 50.0, its lowest level since September. The order backlog series rose to 49.5, its highest level since September.

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.

ISM Mfg (SA) Jan Dec Nov Jan'16 2016 2015 2014
Composite Index 56.0 54.5 53.5 48.6 51.5 51.4 55.6
 New Orders 60.4 60.3 54.8 52.3 54.7 52.6 58.9
 Production 61.4 59.4 55.6 50.9 54.0 53.5 59.2
 Employment 56.1 52.8 52.5 46.2 49.7 51.0 54.4
 Supplier Deliveries 53.6 53.0 55.5 50.1 51.9 50.7 55.0
 Inventories 48.5 47.0 49.0 43.5 47.2 49.0 50.8
Prices Paid Index (NSA) 69.0 65.5 54.5 33.5 53.5 39.8 55.6
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