Skip to comments.ISM manufacturing gauge falls to two-year low
Posted on 08/01/2011 8:03:38 AM PDT by Free Vulcan
WASHINGTON (MarketWatch) U.S. manufacturing activity barely grew in July, according to a key index released Monday in a demonstration of an economy struggling to expand.
The Institute for Supply Managements manufacturing gauge in July dropped 4.4 points to 50.9%, the worst reading since July 2009 and barely staying above the 50% no-change line.
The index came in far below a MarketWatch-compiled economist poll of 54.3%. U.S. stocks slumped after the ISM report, with the Dow industrials DJIA recently down by 35 points.
(Excerpt) Read more at marketwatch.com ...
This will continue until the yuan is properly valued. The Red Chinese consistently undervalue it by tying it to the dollar.
Well I’m taking comfort in the fact that this is Bush’s fault.
So all is well.
Haven’t you heard? We are in fantastic shape here in the US. Everything is coming up roses.
There is still a lot of denial in the face of crippling economic news like this.
America won't recover from this until we fix foreign trade.
YES WE CAN HOPE AND CHANGE YES WE CAN HOPE AND CHANGE YES WE CAN HOPE AND CHANGE.....
“America won’t recover from this until we fix foreign trade.”
But... I’ve been told for years here on FR that companies moving to China and India was good for us.
there lease signs all over the industrial parks near where i live.
Hiring is a chunk of the analysis.
Higher productivity can yield the same amount of product at lower cost and with fewer people. Without knowing more about the structure of this gauge we can't really say that manufacturing is stagnant, nor can we say it's leaping ahead
Again, sufficiently higher productivity at sufficiently lower cost will result in indications that you are a runaway success or failure ~ simultaneously.
Folks who understand this gauge should volunteer some time to edumacate the broad masses.
I bought a nice shirt the other day from a well-known department store for $4.75. It was marked down twice from the original price of $38.00, and I used a $10 coupon they’re sending out every week in the mail. There were tons of shirts and slacks on the rack. Very few shoppers in the store. One cashier. I’ve never seen so many “Clearance” items, many marked down 70%. I don’t know what they’re going to do with all those clothes nobody’s buying.
“Barely breathing” is an apt description of consumers and their spending.
Hiring represents less than 20% of the analysis. I’m sure you’re not trying to suggest that the overall result of the analysis (decline) could be skewed in the opposite direction by 20% of the data, right? Especially after months of crowing that the same system of analysis illustrates runaway success in the manufacturing sector.
The new orders part is what I watch. It is now below the breakeven mark and in contraction.
The Institute for Supply Management does a pretty fair job of explaining the numbers themselves:
There are two things that stand out in this report for me:
1. orders are slowing down.
2. both the inventory levels are shrinking and backlogs are coming down. This tells me that business managers are tightening belts, not wanting to carry inventory - which in turn means reductions in orders, which means lower backlogs.
There’s a break-out of producer inventories vs. customer inventories in the release.
The employment component is only “slowing,” not contracting.
What this says is reflective of what small business has been seeing for three years now: Customers are not there. Customers’ buying power is not there.
Now, all of this isn’t causing today’s reaction on Wall Street. What has Wall Street is a one-day tizzy is how badly their models for predicting today’s number utterly failed. The economy isn’t showing behavior consistent with their leading indicators that have previously shown predictive skill.
Market economists’ models of economic growth have utterly failed in this recession. Macro-econ models for employment, stimulative effect of government spending, stimulative effect of low interest rates (ie, both Keynesian and monetary policy economics) have failed in their predictive powers. Market economists have so often used the word “unexpected” in their press releases analyzing the most recent economic data releases that it turned first into a drinking game, then turned into serious liver damage.
People are going to have to admit the failure of modern economics sooner or later, and the sooner they do, the less of a hole we’ll dig ourselves.
New orders is, IMO, the highest priority component in my analysis, no doubt.
The inventories and backorders are important too. A drop in backorders can presage a drop in new orders below 50.0 if we’re in a “normal” economic pre-recession period.
We are in trouble. Econ indicators are falling, mortgage rates super low and NOTHING is working.
Excellent, couldn’t have said it better myself. You’ve pretty much laid out the landscape of what is going on.
Reading through your material I still didn’t see what questions they ask. We really need to know what they are to see if the data can be meaningful.
The PMI is pretty basic in construction.
They have a representative sample by GIC code of the manufacturing (or service) sectors of the US economy. They accept applications to be surveyed, but the ISM determines whether or not the applicants fit their statistical needs.
Each month, the surveyed respond anonymously to a field of questions that basically ask “are you seeing/spending/planning more/the same/less of X vs. the prior reporting period (which will be a quarter or a month)?”
The responses are weighted and a single number is generated. The detailed break-out is given in the monthly report. Seasonal adjustments can also be applied.
Various econ journals have published analysis of whether or not the PMI correlates well to GDP reports. The answer is “sort of,” but the GDP is composed of much more than just domestic production - import/export mixes, coupled with government spending, can change GDP as much or more than the PMI, especially from the manufacturing sector. This is due to manufacturing being deliberately diminished by government policy over the last several decades to a smaller and smaller component of the GDP. What one finds is that the PMI does indicate pretty well when soft patches are coming in the economy, and that’s why Wall Street’s “relief rally” over the debt deal was squashed *instantly* when the PMI print came in so far below expectations.
The most important thing about the PMI is that it is an actual survey of real businesses, not an economic model based on government-collected data. The ISM is asking people with actual purchasing decision-making power in American industry what they’re seeing, what they plan to do and what their take on the information is, and they do it in a way that lets the respondents be anonymous and makes it difficult for competitors to determine who is reporting what data. This last point should be explained to people who have never been sampled for business data.
I used to get “sampled” every month on farm output, sales, purchases and so on by the USDA, which was annoying, and their methodology was such that many producers outright lied or failed to respond because the USDA always wants to break out this sort of data into such small cohorts that a smart competitor can back-compute your business data. Things like “Oh, this county reports sales of X type of crop in month M for price $P. Hmmm. OK, I know Dave is in that county, and he grows that crop... and only two other guys do... but they don’t grow enough of the crop to make a one-month sale of that amount. So the price reported is what Dave got, not the other two guys.” After I figured out that the USDA was basically reporting my prices to competing farmers, I started becoming quite vague on my price and quantity reporting, and some months I’d claim there were nothing to report, then I’d lump the non-reported months’ sales into some successive month to throw people off.
The PMI is, IMO, better than much of the government data because it is difficult to impossible to do this, so I would like to believe that the participants don’t do as we farmers used to do to protect our business data.
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