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MAPI QuickPoint - A glance at a building block of worldwide business data  MAPI QuickPoint

 

Analysis on ISM Index:  Emerging Picture of Slow Improvement

The following is an analysis from Cliff Waldman, Economist for the Manufacturers Alliance/MAPI, regarding the Institute for Supply Management (ISM) Index for June 2009:

“The June report from the Institute for Supply Management (ISM) reinforces an emerging picture of slow improvement in U.S. factory sector conditions,” Waldman said.  “The overall ISM Index has now exceeded its September 2008 level, a good sign that the impact of the global financial shock has fully played out in the manufacturing sector and the worst of the sharp decline is now behind us.  Nonetheless, a resumption of at least modest production growth does not yet appear imminent and the data offered a number of disappointments.  The key new orders component fell from modest growth to a modest contraction, and the backlog of orders fell back a bit after a sharp and encouraging surge since March. 

“The tenor of the data continue to suggest a bottoming process with slow improvement,” he added.  ”Eleven industries reported growth in production, and inventory liquidation accelerated.  But a still moribund global economy, combined with the reluctance of domestic firms to ramp up capital spending amidst economic weakness, remains a headwind to a full manufacturing recovery.”
     

Issues in Brief  Issues in Brief
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E-524The "Great" Global Manufacturing RecessionDaniel J. Meckstroth
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 MAPI in the News
Durable goods orders rise 1.8 percent
"The May durable goods report adds a persuasive component to a growing body of evidence that U.S. economic activity is beginning to stabilize after a deep contraction," said Cliff Waldman, an economist for the Manufacturers Alliance/MAPI. "Stripping out either transportation or defense, two volatile categories of demand, new orders were up over 1 percent. And ‘manufacturing with unfilled orders' had a sharp increase for the second consecutive month, indicating that demand is beginning to make a positive contribution to future production.
May incomes surge, but savings outpace spending
Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending. The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending.
When demand releases, it may be shop 'til you drop time
"As people halt purchases of things, you start getting layoffs in these industries, and all the related industries, and you start getting a higher level of unemployment," says Donald Norman, an economist for the Manufacturers Alliance. "But just the reverse will happen once they (sales) turn around," he says. "You set in motion a positive feedback effect when people see that the world is not going to end tomorrow, that things are going to be better. Then they'll start to purchase." In every downturn since World War II, Norman says, "The sharper the recession, the sharper the recovery. In virtually every case, forecasters underestimated how strong it would be. I think it was a product of pent-up demand."
Demand picks up in the US economy
"Significant declines in key overseas economies, somewhat improved financing conditions, and a general sense that any economic and manufacturing recovery is likely to be quite modest are impeding a capital spending rebound, a problem that is likely to plague broad economic and manufacturing recovery efforts through the balance of 2009 and early 2010," said Cliff Waldman, economist for the Manufacturers Alliance/MAPI trade group.