Tuesday, November 04, 2003

Truth and distortion. 

Is manufacturing activity surging, as reported by the Institute for Supply Managment (ISM), as widely reported in the press?

NEW YORK (CNN/Money) - U.S. manufacturing accelerated in October, the nation's purchasing managers said Monday, in a report that surpassed most forecasts on Wall Street.

The Institute for Supply Management (ISM) said its index of manufacturing activity jumped to 57 from 53.7 in September. It was the fourth straight month the ISM index was above 50, a number that indicates expansion in the sector.

Economists, on average, expected the ISM index to rise to 55.8, according to Briefing.com.

"This is the best report that we have seen in quite some time in terms of the overall strength of manufacturing," said Norbert Ore, chair of the ISM Manufacturing Business Survey Committee. "The picture continues to improve, and it appears that manufacturing will finish 2003 on a very positive note, assuming the recent trend continues."

Wampum breaks it down for us, after visiting the ISM web site:

Now to be honest, I never got past the "surges", as I was unaware that the ISM report was in fact due out today. After surfing over to their website for the official report, I was confronted with a somewhat less "rosy" analysis:

ISM's Backlog of Orders Index indicates that order backlogs improved again in October. However, manufacturing Employment continued to decline in October as the index remained below the breakeven point (50 percent) for the 37th consecutive month. ISM's Prices Index indicates that manufacturers experienced higher prices for the 20th consecutive month. New Export Orders grew in October for the 22nd consecutive month, while October's Imports Index grew for the 12th consecutive month.
Comments from purchasing and supply managers seem to be lagging the data. The indexes indicate significant improvement, but the purchasing and supply managers' comments do not reflect this trend. It appears that some industries are not yet experiencing the upturn.

Hmmmm...that doesn't sound so great... Time to read more of the CNN report:

The ISM noted, however, that some parts of the manufacturing sector have yet to improve, based on comments from individual purchasing and supply managers that were still cautious.
"It appears that some industries are not yet experiencing the upturn," the ISM report said....

The employment index rose to 47.7 from 45.7 in September, indicating manufacturers were still cutting jobs, but at a slower pace.

"We're still seeing job cuts in manufacturing, and it's going to stay that way for some time," said Robert Brusca, chief economist at Native American Securities in New York."

[Note: Yes, there is a large financial institution run by Indians which is oft quoted in mainstream media outlets.]

So the news is really not all that different from recent months; A significant Keynesian upsurge based upon consumer spending due to one-time middle-class tax credits, but which fails to motivate businesses to increase employment versus fall back on an upswing in productivity.