Saturday, January 3, 2009

Chart of the Week: ISM Plummets

The stock market may have shaken off the December ISM’s 32.4 number, but investors should keep in mind that in the 61 year history of the ISM index, only three previous recessions (1949, 1974-75 and 1980) have seen lower ISM numbers. Even more concerning than the headline manufacturing index number was the report that new orders are now lower than they have been at any time in the 60 year history of the data.

The chart of the week below captures in ISM and the SPX from 1950. In addition to the obvious cliff dive that began in September, I find it interesting that the manufacturing index has been slowly trending down since hitting a high in May 2004.

As an aside, in 2009 I intend to devote more space on the blog to macroeconomic issues (particularly housing, manufacturing and consumer spending), as well global events that shape the geopolitical and economic landscape.

[source: Institute for Supply Management, VIX and More]


Anonymous said...

Looking at the chart, the ISM index seems to have the property of recovering very rapidly from its lows.

Also, it does not seem to be a good leading indictor for what its going to happen to the SPX in the future?

Anonymous said...

Instead of comparing 2 charts that are not graphically represented the same, try comparing them in the same light.
Why not show the change of the SPX INDEPENDANT of the historical movement? Then you would see the absolute movement of the SPX just as you are showing with the ISM. Otherwise, the comparisons are not relatively correlative.

Eric Holthaus said...

cheers for 2009 Bill, and good idea to add a broader focus to the blog.

Kosta said...

Great chart, but as the first comment notes, the ISM index does not appear to do a good job in predicting SPX weakness.

I took a closer look at the relationship between bottoms in ISM and SPX in this post. In general, ISM doesn't seem to predict SPX, but in some cases, the manufacturing index does lead.

Great to see you expand your content.

Bill Luby said...

Anon 1,

I had the same thought at first, before I realized that in 1981-82 the ISM spent 13 months in a row under 40.0.

Special K,

First, thanks for the link and the excellent post. Your blog is off to a good start.

The new orders component of the ISM is similar to the new orders component from the Preliminary Report on Manufacturers' Shipments, Inventories, and Orders that is one of the 'official' leading indicators tracked by the conference board.

The SPX is also one of the ten leading indicators. Measures of manufacturing activity are generally considered to be coincident indicators than only tell you how well (or poorly) the economy is doing at the time the data were gathered.



Kosta said...

Thanks for the additional information on ISM Bill, and the encouragement.

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