Transcript ISM

Institute for Supply Management
(ISM) Manufacturing Survey
Published by: Institute for Supply Management
Frequency: Monthly
Period Covered: Prior Month
Market Significance: Very High
Web Site: http://www.ism.ws
Presented by: Jesse Garate
Victor M Lorenzo
What is it?
• Manufacturing survey
• Tempe-Arizona-based group that represents corporate purchasing
managers around the country
• Two major surveys: Comments from Manufacturing and NonManufacturing sectors
• Purchasing managers are asked to assess if activity is rising,
falling or unchanged:
• Questionnaires are sent out every month to about 400 companies,
representing 20 different industries
• Survey results come out on the first business day of every month
What is in the report?
The report is broken down in the following fields:
New Orders- New orders by purchasing agents
Production- Manufacturing output
Employment- Hiring in the company
Supplier deliveries- Speed of the delivery from suppliers
Inventories- The rate of liquidating manufacturers’ inventories
Customer’s inventories- Agents guess the inventory levels of their
customers
Commodity prices- Prices paid by the manufacturing for suppliers
Backlog of order- Orders not yet filled
New Export orders- Rate of new orders from other countries
Imports- Material that agents purchased from other countries
What is in the report?
The PMI is a composite index based on the seasonally adjusted
diffusion indices for five of the indicators with varying weights:
New Orders
30%
Production
25%
Employment
20%
Supplier Deliveries 15%
Inventories
10%
PMI is calculated as a diffusion index, which shows changes in
activity from month to month showing the prevailing direction of
change and the scope of change, but does not show actual levels of
production
How is it computed?
ISM takes the  of those who reported higher activity and adds 50 
of those who reported no changes
Example: 50 % reported no change and 29.7% reported higher
activity.
1)We take 50% of those who reported no change:
.50 x .50= 25%
2) We add 25% to those who reported higher activity:
25% + 29.7%= 54.7%
Why is it important?
•Considered as the most reliable short-term economic barometer
•Overall PMI gauges turning points in the business cycles and closely
linked to movement in the GDP
•ISM Index is a leading indicator of economic activity
•Since it covers 20 different industries, it gives clues as to the greatest
sources of strength and weaknesses in the economy
–Which sectors are growing?
–Which are hiring?
–Which are feeling the inflation pinch?
•Timeliness: Results are in first business day of every month
Keys to interpreting the data
The PMI benchmark that is used to measure economic activity is 50
–
Index > 60 (sustained basis 3 to 6 months): Both manufacturing
and the economy showing vigorous growth and low
unemployment could prompt the FED to increase rates.
–
Index > 50 but < 60: Both manufacturing and the economy are
expanding
–
Index = 50: No change In activity. It is believed to be consistent
with real GDP growth of about 2.5%.
–
Index < 50 but > 43: Manufacturing activity is contracting, yet the
overall economy may still be growing
–
Index < 43 (sustained basis 3 to 6 months): Mfg and economy
likely to be in recession. Could prompt the FED to lower rates.
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
INDEX
Historical Data 1999-2002
PMI
70
60
50
40
30
20
10
0
1999
2000
2001
TIME
2002
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
INDEX
Historical Data 2003-2007
PMI
70
60
50
40
30
20
10
0
2003
2004
2005
TIME
2006
2007
PMI vs. GDP
PMI Annual Trend
70
60
Index
50
40
PMI
30
20
10
0
PMI
1
2
3
4
5
6
7
8
54.633333
51.658333
43.908333
52.366667
53.266667
60.491667
55.475
53.875
1999
2000
2001
2002
2003
2004
2005
2006
GDP Annual Trend
5
Percentage
4
3
GDP
2
1
0
GDP
1
2
3
4
5
6
7
8
4.5
3.7
0.8
1.6
2.5
3.9
3.2
3.3
1999
2000
2001
2002
2003
2004
2005
2006
Latest Release
M A N U F A C T U R IN G
A T A G LA N C E
A P R IL 2 0 0 7
( R e le a s e d M a y 1 , 2 0 0 7 )
S e r ie s
S e r ie s
%
In d e x
In d e x
P o in t
R a te o f
T rend*
In d e x
A p r il
M arch
C hange
D ir e c tio n
C hange
(M o n th s )
P M I
5 4 .7
5 0 .9
+ 3 .8
G r o w in g
F a s te r
3
5 8 .5
5 1 .6
+ 6 .9
G r o w in g
F a s te r
5
P ro d u c tio n
5 7 .3
5 3 .0
+ 4 .3
G r o w in g
F a s te r
3
E m p lo y m e n t
5 3 .1
4 8 .7
+ 4 .4
G r o w in g
C o n tr a c tin g
1
S u p p lie r
5 0 .2
5 1 .3
-1 .1
S lo w in g
S lo w e r
46
In v e n to rie s
4 6 .3
4 7 .5
-1 .2
C o n tr a c tin g
F a s te r
9
C u s to m e rs ’
4 7 .0
4 8 .0
-1 .0
Too Low
F a s te r
2
P ric e s
7 3 .0
6 5 .5
+ 7 .5
In c r e a s in g
F a s te r
4
B a c k lo g o f
5 4 .5
4 7 .0
+ 7 .5
G r o w in g
C o n tr a c tin g
1
E x p o rts
5 7 .0
5 5 .5
+ 1 .5
G r o w in g
F a s te r
53
Im p o rts
5 8 .0
5 7 .5
+ 0 .5
G r o w in g
F a s te r
64
G ro w in g
F aster
66
G r o w in g
F a s te r
3
N ew
O rd e r s
F rom
D e liv e rie s
In v e n to rie s
F rom
O rd e r s
O V E R A LL E C O N O M Y
M a n u fa c tu rin g S e c to r
Data Analysis
Based on the information from this indicator, we conclude:
-The economy is expanding slightly faster
-We foresee the FED to either stay at current interest rate of 5.25
or slightly increase it