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 6/1/07 For May 2007 | ||||||||||||
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Highlights
The manufacturing sector, after leveling off through the first part of the year, is picking up steam according to the ISM report that shows a 55.0 reading in May, right at the top of expectations and compared with a solid 54.7 reading in April. New orders were especially strong, at 59.6 vs. April's 58.5. But the gain was offset in part by a dip in backlog orders from 54.5 to a 52.5 reading that still indicates month-to-month growth. New export orders, a separate but important category for the manufacturing sector which is a big exporter, rose 2 points to a near record 59.0, a reflection of the softer dollar along with strong global demand.
Supply chain readings show little pressure with deliveries at 50.3 and inventories at 46.1. Once again there were no commodities in short supply. These readings suggest that increased activity in the months ahead should not, at least immediately, lead to shortages or bottlenecks.
But prices paid is a concern, at 71.0 vs. 73.0 in April in a reflection of high energy prices. Employment showed little strength at 51.9 vs. 53.1. This morning the Labor Department reported yet another contraction in manufacturing employment.
Treasuries dipped in initial reaction to the report which suggests that the manufacturing sector, unlike the housing sector, is bouncing back quickly.
The Institute for Supply Management's manufacturing index jumped 3.8 points in April to 54.7 for its best reading in nearly a year. New orders, backlogs, and employment also were strong. However, prices paid spiked 7.5 points to 73.0, reflecting higher energy prices and possibly higher overall demand for raw materials.
ISM manufacturing index Consensus Forecast for May 07: 54.0
Range: 51.0 to 55.0
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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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