Monthly ISM Report

The monthly ISM report came out this morning.  The ISM PMI Index is a level of diffusion index based on surveyed purchasing managers in the manufacturing industry.  The forecasted ISM number called for 54.6, but the actual headline number was 54.4, which was lower than the prior months 56.3.

Figure 1

The ISM PMI index is composed of the following subcategories; New Orders, Production, Employment, Inventories, Prices, Backlog Orders, Exports and Imports.  Some of the indicators need to be rising and some should be decreasing to be healthy.  The subindexes that should be rising month to month are; New orders, Production, Supplier Deliveries, Employment, Backlog Orders and Exports.  Figure 2 shows those subcategories and are all pointing down showing slowing growth.

Figure 2

What are Supplier Deliveries and why are they important?  Supplier Deliveries tracks the change in delivery times from suppliers.  If the value is increasing (above 50), then Purchasing Agents are waiting longer to get material they ordered due to high demand for that material.  Overall the higher demand shows that other areas of the economy are healthy as well.  We see in Figure 2 that Supplier Deliveries are actually slowing, which is another clue that the economy is slowing and is not healthy.  Figure 3 shows the subindexes that should be decreasing; Inventories, Prices and Imports.  Figure 3 shows inventories and prices rising and imports stagnant.  This is also a sign of slow growth.

Figure 3

The general trend in figure 3, since may is trending down showing a slowing since May10.  Figure 1 shows the trend on the 4 week moving average also pointing down.  We will have to continue to monitor these trends over the next few months.