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. Why Investors Care
| Released on 3/1/07 For Feb 2007 | ||||||||||||
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Highlights
At 52.3 in February and up from 49.3 in January, the Institute For Supply Management's index indicates improving conditions in the nation's manufacturing sector and good news for the economic outlook. New orders showed particular strength, up to 54.9 vs. January's 50.3 and indicating an improving pace of business activity in the months ahead. Backlog orders improved even more sharply, breaking a string of five sub-50 contractionary readings to 51.5 vs. 43.5 in January.
The prior run of soft new order and backlog data triggered inventory reductions which continued into February. The inventory index came in at 44.6 vs. January's 39.9. Though higher, the sub-50 reading in February indicates month-to-month drawdown, which is desirable reflecting efforts by supply managers to bring down inventories in line with future expectations for demand.
Other readings included a step higher, but only a limited one, for employment at 51.1 vs. 49.5 in January, and a 59.0 reading for prices paid, up 6 points in the month and reflecting no doubt the recent rise in oil. Concerns over raw material prices have taken a back seat in the manufacturing sector to concerns over growth, but recovery in the sector would quickly put the focus back on prices.
It's a jumpy day in the financial markets and today's ISM report triggered an immediate recovery for stocks and a dip back in Treasuries which have been enjoying significant flight-to-safety demand. But continuing signs of economic strength, such as today's ISM report, will help ease global concerns of economic softness.
The Institute for Supply Management's manufacturing slipped to 49.3 in January from 51.4 in December. The reading is the second sub-50 reading in the last three months, indicating that manufacturing has slowed. While the Fed wants sub-potential growth in the economy, it also does not want a recession. So a return to positive territory would be welcomed.
ISM manufacturing index Consensus Forecast for February 07: 49.7
Range: 48.5 to 50.5
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The ISM manufacturing index (formerly known as the NAPM Survey) is constructed so that any level at 50 or above signifies growth in the manufacturing sector. A level above 43 or so, but below 50, indicates that the U.S. economy is still growing even though the manufacturing sector is contracting. Any level below 43 indicates that the economy is in recession. |
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