The March 2011 ISM Manufacturing Survey was released April 1st. PMI dropped slightly to 61.2%, from a strong 61.4% in February, when the factory index and it's highest level since May 2004. This is the 3rd month for the manufacturing index to be above 60%. Unfortunately, the employment index dropped -1.5 percentage points from last month. which correlates better to the disappointing manufacturing job growth.
The ISM has a correlation formula to annualized GDP. They claim this month's PMI correlates to a 6.5% annualized Q1 2011 GDP increase. Earlier, Paul Krugman ran a regression analysis of the ISM PMI again GDP and proved the PMI to GDP correlation is within bounds. In the Institute of Supply Management survey respondents quotes, many are asking the impact Japan will have on the U.S. supply chain.
New orders dropped -4.7 percentage points to 63.3%.
Production, which is the current we're makin' stuff now meter, increased 2.7 percentage points to 69%. Production correlates to the Federal Reserve's industrial production, which the March figures will be out on the 15th.
Below is the ISM table data, reprinted, for a quick view.
| MANUFACTURING AT A GLANCE March 2011 | ||||||
|---|---|---|---|---|---|---|
|
Index |
Series Index March |
Series Index February |
Percentage Point Change |
Direction |
Rate of Change |
Trend* (Months) |
| PMI | 61.2 | 61.4 | -0.2 | Growing | Slower | 20 |
| New Orders | 63.3 | 68.0 | -4.7 | Growing | Slower | 21 |
| Production | 69.0 | 66.3 | +2.7 | Growing | Faster | 22 |
| Employment | 63.0 | 64.5 | -1.5 | Growing | Slower | 18 |
| Supplier Deliveries | 63.1 | 59.4 | +3.7 | Slowing | Faster | 22 |
| Inventories | 47.4 | 48.8 | -1.4 | Contracting | Faster | 2 |
| Customers' Inventories | 39.5 | 40.0 | -0.5 | Too Low | Faster | 24 |
| Prices | 85.0 | 82.0 | +3.0 | Increasing | Faster | 21 |
| Backlog of Orders | 52.5 | 59.0 | -6.5 | Growing | Slower | 3 |
| Exports | 56.0 | 62.5 | -6.5 | Growing | Slower | 21 |
| Imports | 56.5 | 55.0 | +1.5 | Growing | Faster | 19 |
| OVERALL ECONOMY | Growing | Slower | 22 | |||
| Manufacturing Sector | Growing | Slower | 20 | |||
Now we come to employment. where are the damn jobs? According to the ISM, anything about 50.1 correlates to an increase in manufacturing employment as reported by the BLS. Really ISM? From the below graph we have the ISM manufacturing employment index above 50.1 consecutively since December 2009. For March the index was 63%.
Below is the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left, graphed against the ISM manufacturing employment index on the right. The BLS number is simply raw manufacturing jobs tally, not taking into account population growth or overall sector shrinkage as well as time lag. One can eyeball a slight correlation in the middle of the decade, yet note the divergence this recovery, starting late 2008, to date.
Inventories are contracting. In the below St. Louis FRED graph, March inventories dropped -1.4 percentage points to 47.4%. The ISM says inventories above 42.7% indicate expansion, so that's quite a slowing. Inventories had a massive negative blow out on Q4 GDP.
Exports contracted -6.5 percentage points to 56%.
Prices increased 3.0 percentage points to 85% and the ISM reports this is the highest since July 2008. Survey respondents specifically mention steel obtainment and pricing as an issue.
The ISM neutral point is 50. Above is growth, below is contraction, although the ISM is this report is noting some variance in the individual indexes (see their report). For example, A PMI above 42, over time, also indicates growth.
In terms of which industries were doing really well, Apparel, Leather & Allied Products and Transportation Equipment topped the lists, whereas Furniture is still stuck in the doldrums.
The ISM has much more data, tables and analysis on their website. For more graphs, see St. Louis Federal Reserve Fred database and graphing system.
playing catch up
While some economic reports are more credible and useful than others, I find the ISM pretty useful and wanted to catch up.
Q1 2010 advance GDP will be out April 28th, so we'll see if the above ISM predictive aspects correlate.
I sure have a hard time believing it will, but as noted, they do have a good track record.