Monday, November 01, 2010

ISM Manufacturing Index: Economic Recovery is Real, and Consistent With Real GDP Growth of 5.2%

"Economic activity in the manufacturing sector expanded in October for the 15th consecutive month, and the overall economy grew for the 18th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business":

Highlights include:

1. The last time the ISM Manufacturing Index (PMI) remained above 50% (signaling expansion) for 15 straight months was back in the 2005-2006 period (see chart above).

2. Compared to the 16-months following the 2001 recession, the recovery of the manufacturing sector has been much stronger in the recent 16-month period from June 2009 to October 2010 (see chart above).  The ISM Index has now been at a level of about 54 or above for the last 12 months, and that marks the strongest 12 month expansion in manufacturing since 2004.

3.  ISM's New Orders Index was 58.9 percent in October, an increase of 7.8 percentage points compared to the 51.1 percent in September. This is the 16th consecutive month of growth in the New Orders Index and the largest month-over-month improvement in almost two years.

4. ISM's Employment Index was 57.7 percent in October and 1.2 percentage points higher than the 56.5 percent in September. This is the 11th consecutive month of growth in manufacturing employment.

5. The past relationship between the ISM Index and the overall economy indicates that the average index for January through October (57.4 percent) corresponds to a 5.2 percent increase in real GDP. In addition, if the index for October (56.9 percent) is annualized, it corresponds to a 5 percent annual increase in real GDP.


At 11/01/2010 2:37 PM, Blogger VangelV said...

If this were true then we would not need the Fed to continue with its quantitative easing program. Of course the reported real GDP number depends a great deal on what the BLS used as the inflation estimate. I imagine that it is underestimated just as it has been the past decade and a half, which would explain why main street does not buy the story.

At 11/03/2010 6:10 AM, Blogger marmico said...

The 2010 GDP quarters sequentially are 3.7, 1.7 and 2.0. There is no 5.2% growth in 2010 let alone in sight.

I would posit that the ISM M-Index is less relevant as a predictor of GDP as manufacturing as a % of GDP continues to decline.

At 11/03/2010 4:22 PM, Blogger rjs said...


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