Written by Steven Hansen
The ISM Manufacturing survey declined and remained in expansion. The key internals are in expansion. The Markit PMI manufacturing Index is in positive territory and insignificantly improved.
Analyst Opinion of the ISM Manufacturing Survey
Based on these surveys and the district Federal Reserve Surveys, one would expect the Fed’s Industrial Production index growth rate remain about the same as last month. Overall, surveys do not have a high correlation to the movement of industrial production (manufacturing) since the Great Recession.
From Bloomberg / Econoday:
Consensus Range | Consensus | Actual | |
Markit Manufacturing | 55.3 to 56.5 | 56.5 | 56.5 |
ISM Manufacturing | 58.8 to 61.0 | 58.7 | 57.3 |
From the Markit PMI Manufacturing Index:
U.S. manufacturing operating conditions improve at fastest rate since September 2014
- PMI rises to highest level in over three-and-a-half years
- Output grows at quickest pace since January 2017
- Inflationary pressures intensify
- April survey data signalled a steep improvement in operating conditions across the U.S. manufacturing sector. The latest PMI reading was the highest since September 2014, supported by stronger expansions in output and new orders. Moreover, new business rose at the sharpest pace in over three-and-a-half years. Meanwhile, rates of input price and output charge inflation accelerated to the fastest since mid 2011.
- The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 56.5 in April, up from 55.6 in March and indicated the strongest manufacturing growth in over three-and-a-half years. The pace of improvement was also well above the series trend. Quicker rates of output and new order growth and a greater deterioration in vendor performance contributed to the higher index reading.
z markit_pmi.PNG
From the Institute of Supply Management report:
Relatively deep penetration of this index below 50 has normally resulted in a recession.
Excepts from the ISM release:
conomic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The April PMI® registered 57.3 percent, a decrease of 2 percentage points from the March reading of 59.3 percent. The New Orders Index registered 61.2 percent, a decrease of 0.7 percentage point from the March reading of 61.9 percent. The Production Index registered 57.2 percent, a 3.8 percentage point decrease compared to the March reading of 61 percent. The Employment Index registered 54.2 percent, a decrease of 3.1 percentage points from the March reading of 57.3 percent. The Supplier Deliveries Index registered 61.1 percent, a 0.5 percentage point increase from the March reading of 60.6 percent. The Inventories Index registered 52.9 percent, a decrease of 2.6 percentage points from the March reading of 55.5 percent. The Prices Index registered 79.3 percent in April, a 1.2 percentage point increase from the March reading of 78.1 percent, indicating higher raw materials prices for the 26th consecutive month. Comments from the panel reflect continued expanding business strength. Demand remains strong, with the New Orders Index at 60 or above for the 12th straight month, and the Customers’ Inventories Index remaining at low levels. The Backlog of Orders Index continued expanding, with its highest reading since May 2004, when it registered 63 percent. Consumption, described as production and employment, continues to expand, but has been restrained by labor and skill shortages. Inputs, expressed as supplier deliveries, inventories and imports, declined overall, due primarily to inventory reductions likely led by supplier performance restrictions. Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue. Export orders remained strong. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. In April, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains continue to struggle.”
Of the 18 manufacturing industries, 17 reported growth in April, in the following order: Wood Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Furniture & Related Products; Paper Products; Machinery; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Miscellaneous Manufacturing; and Apparel, Leather & Allied Products. No industry reported a decrease in PMI® in April compared to March.
z%20ism_mfg.png
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.
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).
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 jobs growth.
The ISM employment index appears useful in predicting turning points which can lead the BLS data up to one year.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>