Summary
As previously commented on in abbreviated fashion, the Institute for Supply Management released March results last week for its respective indexes designed to gauge the economy's manufacturing and service-sector activity. The latter measure improved slightly from its February level, while the former one came in somewhat weaker. Here is a more detailed look at the results.
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Foreword
Throughout its history, the Institute for Supply Management (formerly known as the National Association of Purchasing Management) has enjoyed a very solid reputation. It is no secret that John Williams and I grow increasingly "skeptical" (euphemism for "cynical") about the accuracy if not at times the outright intellectual honesty of the critical economic data coming out of various government agencies. Thus, we view data from sources like the Institute for Supply Management as a very important resource. This explains why I expend the time I do each month in examining the ISM numbers.
The above said, ISM employs seasonal-adjustment factors developed each year by the Commerce Department. In turn, there have been times when it looked to me like these seasonals created some possible distortions, ones that also showed up in other series in which the same Commerce Department factors were used.
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General Observations
* Last Monday (4/3), ISM reported that its index designed to measure the eocnomy's manufacturing activity ("PMI") fell in March, to 55.2. This compared with a February reading of 56.7.
* Last Wednesday (4/5), ISM released results for its March service-sector index. It came in at a reading of 60.5, modestly better than February's 60.1.
(NOTE: Overall index and sub-index readings above 50.0 indicate expansion; readings below 50.0 indicate contraction.)
March ISM Manufacturing Data
* ISM's March PMI came in at 55.2, versus February's reading of 56.7. The March result was approximately one point worse than the consensus estimate.
* In March of 2005, the PMI stood at 55.3, 0.1 points or a negligible 0.2% above March 2006.
* The prices-paid component registered a meaningful 4.0-point rise (+6.4%) during March, to 66.5, keeping this key area at a high level by historical standards. Incorporating the March increase, the price index stood 18.0 points or 37.1% above its most recent low of 48.5, set last July.
* The March performance of selected components:
Change Direction ROC@
------ ----------- ----
Backlog of Orders 5.0 to 59.5 Growing F
Prices Paid 4.0 to 66.5 Increasing F
Supplier Deliveries 0.9 to 52.2 Slowing F
Production 0.1 to 57.5 Growing F
Inventories -0.9 to 48.7 Contracting F
Employment -2.5 to 52.5 Growing S
New Orders -3.5 to 58.4 Growing S
@Rate of change: S = slower, F = faster.
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* Some comments from ISM's "What Respondents Are Saying" section of last week's report:
- "Business is very strong in all sectors" (Food).
- "Slight uptick in business. Still haunted by price increases related to oil and energy" (Printing & Publishing).
- "Demand appears to be softening" (Chemicals).
- "Overall sales have seen an increase of 20 percent over the past quarter" (Electronic Components & Equipment).
- "Energy-related costs appear to be stabilizing, but metals look like they are in for another run-up shortly" (Instruments & Photographic Equipment).
* Over the 12-month period ended March, the overall PMI registered a high of 58.1 (October 2005). Its low of 51.8 was set last May. The 12-month average came in at 55.4, 0.2 points or 0.6% above March's result. The highest reading since January 2003 was 63.1 (occurring in December of 2003), 7.9 points or 14.3% above March's reading.
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
--------------------------------------------
Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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03/06 55.2 66.5 42% 9% 49%
02/06 56.7 62.5 36% 11% 53%
01/06 54.8 65.0 38% 8% 54%
==========================================
12/05 55.6 63.0 37% 11% 52%
11/05 57.3 74.0 53% 5% 42%
10/05 58.1 84.0 70% 2% 28%
09/05 58.0 78.0 60% 4% 36%
08/05 53.5 62.5 36% 11% 53%
07/05 56.4 48.5 24% 27% 49%
06/05 54.0 50.5 22% 21% 57%
05/05 51.8 58.0 32% 16% 52%
04/05 53.8 71.0 52% 10% 38%
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03/05 55.3 73.0 51% 5% 44%
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02/05 55.6 65.5 38% 7% 55%
01/05 56.3 69.0 45% 7% 48%
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12/04 58.6 72.0 52% 8% 40%
11/04 56.9 74.0 55% 7% 38%
10/04 56.8 78.5 61% 4% 35%
09/04 58.0 76.0 55% 3% 42%
08/04 59.6 81.5 67% 4% 29%
07/04 61.5 77.0 58% 4% 38%
06/04 61.5 81.0 66% 4% 30%
05/04 62.9 86.0 74% 2% 24%
04/04 63.0 88.0 77% 1% 22%
03/04 62.3 86.0 73% 1% 26%
02/04 62.2 81.5 65% 2% 33%
01/04 62.9 75.5 54% 3% 43%
==========================================
12/03 63.1 66.0 37% 5% 58%
11/03 60.6 64.0 33% 5% 62%
10/03 57.2 58.5 26% 9% 65%
09/03 54.4 56.0 21% 9% 70%
08/03 55.5 53.0 19% 13% 68%
07/03 52.3 53.0 21% 15% 64%
06/03 50.5 56.5 26% 13% 61%
05/03 50.0 51.5 21% 18% 61%
04/03 46.5 63.5 37% 10% 53%
03/03 46.4 70.0 47% 7% 46%
02/03 49.9 65.5 <------ NA ------>
01/03 52.8 57.5 <------ NA ------>
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Commodities Reported in Short Supply During March:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
There were no commodities reported in short supply in March.
Commodities Reported Up in Price During March:
Aluminum (8); Aluminum Extrusions; Aluminum Products (4); Carbon Black; Copper (10); Copper Products (4); Corrugated Containers (5); Electronic Components; Flour; Freight; Natural Rubber; Paper (3); Particle Board; Stainless Steel (2); Steel; Steel - Hot Rolled; and Sugar (2).
Commodities Reported Down in Price During March:
Caustic and Natural Gas (3).
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March ISM Non-Manufacturing Data
* ISM's March service-sector index came in at 60.5, versus February's reading of 60.1. The March result was approximately 1.5 points better than the consensus estimate.
* In March of 2005, the service-sector index stood at 61.8, 1.3 points or 2.1% above March 2006.
* The March performance of selected components:
Change Direction ROC@
------ ----------- ----
New Orders 3.3 to 59.5 Increasing F
Supplier Deliveries 1.5 to 54.0 Slowing F
Inventories 1.0 to 54.0 Increasing F
Backlog of Orders -3.5 to 50.5 Increasing S
Employment -3.6 to 54.6 Increasing S
Prices Paid -4.3 to 60.5 Increasing S
@Rate of change: S = slower, F = faster.
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(NOTE: Overall index and sub-index readings above 50.0 indicate expansion; readings below 50.0 indicate contraction.)
* The index's price component fell 4.3 points or a substantial 6.6% in March, to 64.8. By historical standards, this remains a high level. However, March was well below the September 2005 reading of 78.4, which was this component's highest reading in the history of the overall service-sector index (inception in July of 1997). March marked the 48th consecutive month of rising prices.
* For the 12 months ended March, the service-sector index's high was 64.8 (August 2005), and its low was 53.7 (September 2005). The 12-month average was 59.7, 0.8 points or 1.3 below the March result.
* To a large degree, the back-to-back strongest/weakest readings last August and September reflected the influence of Hurricane Katrina on the overall results.
* The service-sector index's most recent high was 65.9, occurring in April of 2004. This was 5.4 points or 8.9% above March's result.
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INSTITUTE FOR SUPPLY MANAGEMENT
NON-MANUFACTURING INDEX -- TOTAL
INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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03/06 60.5 60.5 36% 5% 58%
02/06 60.1 64.8 39% 4% 57%
01/06 56.8 67.2 37% 4% 59%
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12/05 61.0 67.2 33% 7% 60%
11/05 59.3 70.8 44% 8% 48%
10/05 59.2 74.1 54% 5% 41%
09/05 53.7 78.4* 58% 2% 40%
08/05 64.8 67.2 36% 6% 58%
07/05 60.4 69.5 39% 3% 58%
06/05 61.1 61.6 27% 5% 68%
05/05 59.2 62.4 27% 5% 68%
04/05 60.4 64.1 41% 2% 57%
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03/05 61.8 65.9 43% 1% 56%
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02/05 60.4 67.0 43% 3% 54%
01/05 60.3 66.8 37% 4% 59%
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12/04 65.5 71.6 38% 5% 57%
11/04 62.8 70.2 38% 4% 58%
10/04 60.6 70.9 44% 3% 53%
09/04 58.7 66.5 35% 3% 53%
08/04 59.3 70.3 40% 4% 56%
07/04 63.1 71.6 45% 5% 50%
06/04 59.9 74.8 52% 3% 45%
05/04 64.3 77.2 55% 3% 42%
04/04 65.9 68.5 53% 3% 44%
03/04 62.7 64.8 43% 3% 54%
02/04 61.3 58.1 31% 9% 60%
01/04 65.6 60.9 26% 4% 70%
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*Highest reading in the series' history.
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* Following are some comments from the "What Respondents Are Saying" section of last week's ISM service-sector report:
- "Sales, orders higher than last year, same period" (Insurance).
- "Overall slight economic improvement." (Agriculture)
- "Business build looking towards the summer is looking very good and much stronger than anticipated and much better than 2005" (Other Services).
- "The shortage of labor is affecting all aspects of supply management" (Other Services).
- "Still high prices and shortages in major building products" (Construction).
- "Slightly higher activity overall with some price stabilization. Still extremely competitive on business side" (retail/consumer).
- "Skills shortage for higher-level professionals beginning to occur" (Finance & Banking).
Commodities Reported in Short Supply During March:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
Aluminum; Construction Labor/Trades; Construction Services (2); Insulation; Roofing Shingles/Products (3); Skilled Labor/Qualified Personnel; Steel/Steel Products (2); and Wallboard (2).
Commodities Reported Up in Price During March:
Air Fares; Aluminum (4); Aluminum Products/Wire; Beef (fresh and premium) (5); Concrete/Ready Mix; Copper (31); Copper Products (various) (5); Copy Paper (2); Corrugated (5); #1 Diesel Fuel; #2 Diesel Fuel (15); Energy; Freight/Shipping Costs; Fuel (28); Fuel Transportation; Gasoline* (28); Lumber (pine and treated); Packaging Materials (2); Paper (26); Paper (cut size); Paper Products (2); Petroleum/Petroleum Related Products (3); Plastic; Rubber Products; Seafood/Salmon; Steel (2); Steel Products (4); and Unleaded Gasoline.
Commodities Reported Down in Price During March:
Cheese; Chicken (2); Dairy; Gasoline* (3); Office Paper/Office Supplies (2); Plastic Bags; Polyethylene Products (various); Pork/Pork Trim (2); and Stretch Film.
*Reported as both up and down in price.
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