My notes as I explore various business and financial topics

Tuesday, February 8, 2011

ISM Manufacturing Index Moves Upward, Points to Recovery

The topic of the Zacks newsletter in my inbox was describing some obscure graph called the ISM Manufacturing index.

Normally, I would have written it off as technical finance speak that was way over my head and to be ignored. However, I had just read Professor Peter Navarro's book "Always a Winner" in which he describes the ISM index as one of the key indicators that accurately forcasts economic health.

Luckily, this extremely volatile market provides an excellent time to study these indicators, as the sharp trends helps emphasizes the patterns.

The ISM Manufacturing index is issued by, Arizona based, Institute of Supply Management. It gives overall indications of the health of the business sector based upon gauges in five main criteria

   1. Production levels

   2. New orders placed

   3. Inventory Levels

   4. Supplier deliveries

   5. Employment environment

You can see the ISM plunge to 34 points in Jan 2009. Anything under 50 signals an economic slowdown in business and manufacturing. 50 is considered neutral.

Since then, the index has been steadily climbing. The ISM climbing over 50 signals an expansion in business production. The ISM is suppose to lead actual real-time output and production by three months.

More info on the ISM Manufacuring Index here.

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