Econoday Economic Report: ISM Mfg Index July 1, 2009

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ISM Mfg Index

Released On 7/1/2009 10:00:00 AM For Jun, 2009

	Prior	Consensus	Consensus Range	Actual
ISM Mfg Index - Level	42.8	45.0	41.0 to 47.5	44.8

Highlights
The PMI rose as widely foreseen, up 2 points to 44.8. The index was expected to climb by roughly 2 points a month until hitting the month-to-month breakeven level of 50 sometime in the third quarter. But that view may have changed given a nearly 2 point decline in new orders to 49.2, a sub-50 reading indicating that a greater share reported a month-to-month decline than a gain.

Customer inventories are very positive, down 2-1/2 points to 43.5 as more purchasers see inventories at their customers as too low. The separate inventories index, which measures inventories at respondents' firms, also shows destocking, at 30.8 for a more than 2 point fall. Continued destocking will limit future layoffs, which are continuing but at a slowing rate based on the employment index's 6.4 point improvement to 40.7. Production is an important plus in the month, up 6-1/2 points to 52.5 and is the biggest factor in the PMI's improvement.

Inventories are drawing down while production is picking up in the manufacturing sector, key elements of the ISM's report on June. Another important factor is a big gain to a dead-even 50 reading for prices paid, one that will quiet concern over deflation. Markets showed limited reaction to the report, likely reflecting the weakness in new orders.

Market Consensus before announcement
The Institute for Supply Management's manufacturing index continued to rise toward positive territory, improving to 42.8 in May from 40.1 in April. Although the latest reading is still in negative territory, it is the highest level since September 2008 at 43.4. Looking ahead, we may seen a further advance in June as May's new orders index crossed over into positive territory. The new orders index rose to 51.1 from 47.2 in April. The latest figure was the first time in 17 months that this index has topped the 50 breakeven mark, indicating actual growth in new orders.

Definition
The Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. A composite diffusion index of national manufacturing conditions is constructed, where readings 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

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.
Data Source: Haver Analytics

2009 Release Schedule

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