ISM Manufacturing Index Rises A Bit Above Expectations

The Institute for Supply Management published its March Manufacturing Report. The latest headline PMI at 54.9 percent is an improvement over last month's 53.9 percent. Today's number was slightly above the Investing.com forecast of 54.3.

Here is the key analysis from the report:

Manufacturing expanded in April as the PMI® registered 54.9 percent, an increase of 1.2 percentage points when compared to March's reading of 53.7 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

"The April PMI® registered 54.9 percent, an increase of 1.2 percentage points from March's reading of 53.7 percent, indicating expansion in manufacturing for the 11th consecutive month. The New Orders Index registered 55.1 percent, equal to the reading in March, indicating growth in new orders for the 11th consecutive month. The Production Index registered 55.7 percent, slightly below the March reading of 55.9 percent. Employment grew for the 10th consecutive month, registering 54.7 percent, an increase of 3.6 percentage points over March's reading of 51.1 percent. Comments from the panel generally remain positive; however, some expressed concern about international economic and political issues potentially impacting demand."

Here is the table of PMI components.

I'm reluctant to put too much focus on this index for various reasons, but they are essentially captured inBriefing.com's Big Picture comment on this economic indicator.

 

 

The chart below shows the Manufacturing Composite series, which stretches back to 1948. I've highlighted the eleven recessions during this time frame and highlighted the index value the month before the recession starts.

Click for a larger image

For a diffusion index, the latest reading of 51.3 indicates weak expansion. What sort of correlation does that have with the months before the start of recessions? Here are the eleven data points for the months before recessions arranged in numeric order with the latest data pointed inserted in the sequence (highlighted in red).

42.1, 44.8, 45.7, 47.2, 47.8, 48.5, 49.2, 50.5, 50.7, 53.2, 53.7, 66.2

Today's reading is near the top of the range, with ten lower and one higher.

How revealing is today's 0.5 point change from last month? There are 795 monthly data points in this series. The absolute average month-to-month point change is 2.0 points. So month-over-month change in today's headline PMI number has little statistical significance.

Here is a closer look at the series beginning at the turn of the century.

Click for a larger image

To reiterate the Briefing.com assessment: "The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle." The ISM reports nevertheless offer an interesting sidebar to the ongoing economic debate.

Note : I use the FRED USRECP series (Peak through the Period preceding the Trough) to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The USRECP series thus flags December 2007 as the start of the recession and May 2009 as the last month of the recession, giving us the 18-month duration. The dot for the last recession in the charts above are thus for November 2007. The "Peak through the Period preceding the Trough" series is the one FRED uses in its monthly charts, as illustrated here.