In September 2011, the ISM manufacturing index rose encouragingly to 51.6 from 50.6 in August. This was above market expectations for a slight fall to 50.5. The ISM has now been above the key 50 index level for 26 consecutive months, although there has been a clear loss of momentum in recent months.
A breakdown of the ISM index shows a generally encouraging outcome, although the crucial New Orders Index remained below 50 and unchanged during the month at 49.6. The employment index recorded a healthy increase to 53.8 (up 2.0 index points), while production was up a vital 2.6 index points to 51.2, and exports rose 3.0 index points to 53.5. The rate of increase in Prices edged higher to 56.0 after slowing for four consecutive months.
The Institute for Supply Management surveys nearly 400 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where reading 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.
The ISM manufacturing data gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. The Federal Reserve keeps a close watch on this report. Since 1970 the ISM manufacturing index has averaged 52.6, while since 1990 the index has averaged 51.1
According to the ISM, “comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products."
Although the ISM index beat expectations in September, and remains above the 50 index level for the 26th consecutive month, the index has slowed appreciably in recent months signalling a significant loss in momentum. The US economy is experiencing a crisis of confidence (which is highlighted by the comments made by the ISM itself – see above) and is perilously close to recession.
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