FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 01 April 2016

March 2016 ISM Manufacturing Survey Now in Expansion.

Written by Steven Hansen

The ISM Manufacturing survey is now in expansion after 5 months in contraction. The key internals were positive. The PMI manufacturing Index, also released today, is in expansion.

The ISM Manufacturing survey index (PMI) marginally imiproved from 49.5 to 51.8 (50 separates manufacturing contraction and expansion). This was at expectations which were 48.5 to 54.0 (consensus 50.5).

Earlier today, the PMI Manufacturing Index was released - from Bloomberg:

Released On 4/1/2016 9:45:00 AM For Mar, 2016
Prior Consensus Consensus Range Actual
Level 51.3 51.7 51.5 to 51.9 51.5

Recent History Of This Indicator
The manufacturing PMI final is expected to edge 3 tenths higher from the flash reading to what would nevertheless be a weak 51.7. Unlike actual government data on the factory sector, this report never showed contraction last year though it has been slowing so far this year. Declines for energy equipment and for exports have been specifically cited as major negatives in this report. The pace of production is at multi-year lows and selling prices posted one of their rare drops in the flash report

The regional Fed manufacturing surveys indicated some growth in March, and now the ISM indicates manufacturing shows expansion also.

Relatively deep penetration of this index below 50 has normally resulted in a recession.

The noisy Backlog of Orders improved but remains in and is now in expansion. Backlog growth should be an indicator of improving conditions; a number below 50 indicates contraction. Backlog accuracy does not have a high correlation against actual data.

Excepts from the ISM release:

Economic activity in the manufacturing sector expanded in March for the first time in the last six months, while the overall economy grew for the 82nd consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The March PMI® registered 51.8 percent, an increase of 2.3 percentage points from the February reading of 49.5 percent. The New Orders Index registered 58.3 percent, an increase of 6.8 percentage points from the February reading of 51.5 percent. The Production Index registered 55.3 percent, 2.5 percentage points higher than the February reading of 52.8 percent. The Employment Index registered 48.1 percent, 0.4 percentage point below the February reading of 48.5 percent. Inventories of raw materials registered 47 percent, an increase of 2 percentage points above the February reading of 45 percent. The Prices Index registered 51.5 percent, an increase of 13 percentage points above the February reading of 38.5 percent, indicating higher raw materials prices for the first time since October 2014. Manufacturing registered growth in March for the first time since August 2015, as 12 of our 18 industries reported sector growth, and 13 of our 18 industries reported an increase in new orders in March."

Of the 18 manufacturing industries, 12 are reporting growth in March in the following order: Printing & Related Support Activities; Furniture & Related Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Paper Products; Primary Metals; and Computer & Electronic Products. The five industries reporting contraction in March are: Apparel, Leather & Allied Products; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; and Petroleum & Coal Products.

It is interesting to note that ISM Manufacturing represents less than 10% of USA employment, and approximately 20% of the business economy. Historically, it could be argued that the production portion of ISM Manufacturing leads the Fed's Industrial Production index - however the correlation is not strong when looking at trends.

New orders have direct economic consequences. Expanding new orders is a relatively reliable sign a recession is NOT imminent. However, New Orders contraction have given false recession warnings twice since 2000. This month new orders remained unchanged but is sightly in expansion.

However, holding this and other survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (blue bar) and US Census manufacturing shipments (red bar) to the ISM Manufacturing Survey (purple bar).

Comparing Surveys to Hard Data

z survey1.png

Caveats on the use of ISM Manufacturing Index:

This is a survey, a quantification of opinion - not facts and data. However, as pointed out above, certain elements of this survey have good to excellent correlation to the economy. Surveys lead hard data by weeks to months, and can provide early insight into changing conditions.

Many use ISM manufacturing for guidance in estimating manufacturing employment growth. Econintersect has run correlation coefficients for the ISM manufacturing employment and the BLS manufacturing employment data series above going back to 1988, using quarterly data. The coincident correlations are actually negative, but poor (r = -0.2 to -0.4 for various time periods examined). See here for definitions.

Before 2000 the ISM employment data had a weak positive correlation to the BLS data 4 to 7 quarters later (r values above 0.6). Since 2000 the correlations for ISM manufacturing employment as a leading indicator for the BLS manufacturing employment have been between 0 and 0.3 for r (correlation coefficient). These values define correlations as none to poor.

In other words, ISM employment index is not useful in understanding manufacturing jobsgrowth. The graph below shows BLS manufacturing employment month-over-month gains against the ISM Manufacturing employment index.

Indexed to Jan 2000 - Comparison of the ISM Manufacturing Employment Subindex (blue line) to BLS Manufacturing Employment (red line) - all data seasonally adjusted

The ISM employment index appears useful in predicting turning points which can lead the BLS data up to one year.

>>>>> Scroll down to view and make comments <<<<<<

Permanent link to most recent post on this topic

Click here for Historical Releases Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Economic Releases


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
A Short Note on a Connection Between Marginalist Economics and Folk Medicine
Run A High Pressure Economy? Janet Yellen Does Not Understand the Problem
News Blog
A Pony And His Beloved Teddy Bear Reunite After Being Apart For 3 Years
October 2016 Kansas City Fed Manufacturing Remains In Expansion
September 2016 Median Household Income Not Statistically Different Than The Previous Month
September 2016 Pending Home Sales Index Improves
22 October 2016 Initial Unemployment Claims: Rolling Averages Marginally Worsen
Durable Goods New Orders Marginally Declined in September 2016
Infographic Of The Day: 41 Interesting Facts About Tesla Motors
Early Headlines: Asia Stocks Down, Oil Lower, Great Lakes Wind Power, Chinese Moving Mfg To US, Tesla Reports Profit, Dems Forecast To Take Senate, China's Debt And More
How Miller Stacks Up Against His Draft Class
Inside The Machine: How Two Nobel Winners Taught Us How Companies Tick
Healthcare's Dirty Little Secret: Results From Many Clinical Trials Are Unreliable
The Cleveland Indian's Unique Use Of Andrew Miller
What We Read Today 26 October 2016
Investing Blog
Thirsty For Income? How To Thrive In This Yield Desert
Apple's First Annual Sales Decline In 15 Years
Opinion Blog
A Hard Brexit And Reduced Migration Won't Benefit UK Workers
What Triggers Collapse?
Precious Metals Blog
Inflation Surging As Platinum Signals Stock Market Decline
Live Markets
27Oct2016 Market Update: Wall Street Flat, Crude Prices Recovering, US Dollar At Resistance And Gold Struggling At Support
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved