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Transcript of The ISM Reports on Business. 2 Norbert Ore, C.P.M., CPSM Chair, Business Survey Committee Institute...
The ISM Reports on Business
2
Norbert Ore, C.P.M., CPSM
Chair, Business Survey Committee
Institute for Supply Management
“Adding Uncertainty to an Environment of Uncertainty”
Capitalism is the Worst System
− Except for All of the Rest
•The financial system is broken.•Banks aren’t lending.•Housing supply exceeds housing demand.•The Federal Reserve has no tools left.•Consumers are tapped out.•The unemployment rate is soaring.
How are things in the Economy??
It has happened before!!??
5
Composition of GDP
Governmentspending - 19%
CapitalSpending -16%
ConsumerSpending -70%
Other - 5%
6
Composition of Consumer Spending (PCE*)
* Personal Consumption Expenditures
Durable Goods- 12%
Nondurablegoods - 29%
Services - 59%
7
The Reports on Business
• A series of diffusion indexes measuring
change from month to month
• Above 50% indicates growth
• Below 50% indicates contraction
• 50% is the breakeven or “no change”
8
Economics and Calculus
The Rate of UP is DOWN
50 %
The Rate of DOWN is UP
50 %
ISM Manufacturing PMI 1990-2009
30
35
40
45
50
55
60
65
70
75
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Mfg Recession
August 2000-Jan 200218 month manufacturing recession
Cycle PeakMay 2004
61.4
2009 Avg
-15.0
-10.0
-5.0
0.0
5.0
10.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
PMI Annual Avg - 1990-2008
11
45.2
34.9
12
http.www.ism.ws
The ISM Report on Business®
13
Manufacturing
Index Weight
New Orders .20
Production .20
Employment .20
Supplier Deliveries .20
Inventories .20
Non-Manufacturing
Index Weight
New Orders .25
Business Activity .25
Employment .25
Supplier Deliveries .25
ISM Composite Indexes
http://www.ism.ws
14
Manufacturing PMI - 35.6Non-manufacturing NMI - 42.9
30
35
40
45
50
55
60
65
70
75
PMI NMI
15
Manufacturing New Orders Index: 33.2
20
30
40
50
60
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
New Orders 3 Month Moving Avg
16
Manufacturing Production Index: 32.1
20
30
40
50
60
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Production 3 Month Moving Avg
17
Manufacturing Employment
Index: 29.9
25
30
35
40
45
50
55
60
65
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Employment 3 Month Moving Avg
Manufacturing Payrolls
19
Manufacturing Inventories Index: 37.5
30
35
40
45
50
55
60
65
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Inventories 3 Month Moving Avg
20
Manufacturing Customer Inventories Index: 55.5
30
35
40
45
50
55
60
65
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Customer Inventories 3 Month Moving Avg
Too
Too High
`
21
Manufacturing Prices PaidIndex: 29.0
15
25
35
45
55
65
75
85
95
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Prices 3 Month Moving Avg
Peak at 88.0 April 2004
Global Demand for Commodities
Katrina 8/22/05Rita 9/21/05
Peak at 91.5June 08
Manufacturing New Export OrdersIndex: 37.5
30
35
40
45
50
55
60
65
70
75
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
New Export Orders 3 Month Moving Avg
Manufacturing Imports Index: 36.5
30
35
40
45
50
55
60
65
70
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Imports 3 Month Moving Avg
24
Manufacturing Inventory to Sales Ratio(New Orders - Inventories)
- 4.3
-20
-15
-10
-5
0
5
10
15
Inventories are currently outpacing New Orders
25
Manufacturing Supplier Deliveries vs Prices Paid
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
Jan-
01
Apr-0
1
Jul-0
1
Oct-01
Jan-
02
Apr-0
2
Jul-0
2
Oct-02
Jan-
03
Apr-0
3
Jul-0
3
Oct-03
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Jul-0
8
Oct-08
Jan-
09
Apr-0
9
Jul-0
9
Supplier Deliveries Prices
Pricing Power is typically created by Slowing Supplier Deliveries
26
Manufacturing GrowthIndustries in recession• Petroleum and Coal Products• Electrical Equipment, Components• Chemicals• Primary Metals• Machinery• Paper Products• Computer and Electronic Products• Food, Beverage• Transportation Equipment• Plastic and Rubber Products• Fabricated Metal Products
Industries in depression• Nonmetallic Mineral Products• Printing• Textiles • Wood Products• Furniture• Miscellaneous Mfg• Apparel
It has happened before!!??
28
• 1987 stock market crash• S&L crisis (1980s-1990s)• Rapid decline of oil prices in the 1980s (think Texas)• Asian Contagion - 1997• Long-Term-Capital Management - 2000 • September 11, 2001 • Enron downfall – 2002 credit crisis• Rapid rise of oil prices in the 2000s • Hurricanes Katrina and Rita – 2005
• Hurricane Ike – 2008
• Since 1982, the US economy has been in recession just 5.2% of the time,
versus 31% of the time between 1969 and 1982. • “The Panic and Recession of 2008” will result in a lengthier than normal
recession with the low point being Q42008-Q12009.• Rapid decline of oil prices in 2008 (think Texas)
Economics Events ………
Spending Money Spend your money on yourself•Seek greatest value•Careful, Maximize
Personal items
Somebody else’s money on you•Careful•Not the cheapest
Expense Account Lunch
Spend your money on somebody else•Careful, considered•Devote less detail
Gift
Somebody else’s money on somebody else•Distributor of welfare•Generosity
School system
Reference: Milton Friedman