Interpreting ISM's Manufacturing Sector Downturn
Yesterday's Wall Street Journal featured a story highlighting recent ISM data that points to the first manufacturing slowdown in the U.S. in years. According to the story, "The gloomy news on the factory sector came from private research group the Institute for Supply Management, which reported Wednesday that its December manufacturing index moved to a contractionary 47.7 in November, from 50.8 in November and 50.9 in October. That was the worse pace of activity since April 2003." As I look at this information, what's fascinating to me is that this contraction is not owing to excess inventories according to ISM, but "slower demand" which "appears to be more of a problem" this time around. Perhaps leaned out supply chains in the manufacturing economy are providing less of an inventory buffer for companies to run through as orders decline. Regardless, this is probably the most significant indicator of a potential 2008 recession -- at least within the manufacturing sector -- that I've seen yet.
- Jason Busch
- Jason Busch
Because the index showed a month-over-month increase in these factors every month since January 2007, the actual amount of the (decreased) "activity" in the latest period was probably more in line with a month from earlier this year, not April 2003.
The figure from April 2003 represents a change from March 2003, not an actual measurement of activity.
I wish something would change here: either reporters learn what the index means, ISM adjust its report to be more easily understood (and consistent with the way everyone else in the world develops indicies), or that people simply rely on other indicators that are more competently developed.