MDM-Podcasts-launch
Need Help? (888) 742-5060

In The News:

Understanding the Underlying Trends from ISM

Understanding the Underlying Trends from ISM

May 2, 2014

The April Institute for Supply Management release was mostly optimistic in terms of the purchasing managers’ perceptions and future plans around growth. The indexes reflect a change in attitude, expectation and experience from the previous month, and that is why these are important leading indicators.

By definition a diffusion index with a value over 50 reflects expansion and below 50 reflects contraction. However, looking at the percentage changes month-over-month can provide a more complete picture of the underlying trends driving the economy, detail that are often lost in the press release. For example, the percentage change can indicate if an area is slowing but still growing or growing but still in a contraction state.

The table below shows the index values for March and April, along with the change (in %), the direction of change and how it compared to the prior month’s rate of change. The trend (based on direction only) is also provided.

Production, employment and new orders all moved higher while supplier deliveries continued to be slow (an index over 50 for supplier deliveries indicates slower deliveries). The supplier deliveries had a significant spike in the February report likely related to the adverse weather, a recovery in March and then slowed again in April.

On a quite positive note and in line with production and new orders responses, inventories continued their three-month trend from a “too low” level in January. Customer inventories, however, continue their long term trend of being “too low.” Some of this may be due to rapidly changing economic conditions along with risk adverse management wanting to have a more “just in time” model. In addition, multiple channels and disruptive technology can lead to cutting costs associated with excess inventory.

The last few components did not show surprises. Prices softened slightly but are still consistent with expansion. Backlogged orders were up slightly but that index as a whole has moved from 48 to 55 in the last four months. This is another area where weather may have played a role in the first quarter.

Lastly, exports and imports continued their long term upward trends. Imports and exports are most sensitive to transportation costs and currency fluctuations along with some political variables. These are difficult to predict but in the short term things seem stable.

Market data supports what the ISM release is conveying, the MSCI USA Materials, Industrials and Energy indexes have returned 25 percent, 41.45 percent and 26 percent respectively over the last year. While there will likely be some seasonal fluctuations, overall the materials, industrials, energy and overall manufacturing sector seem poised for continued growth under the current conditions.

ISM - April 2014

© 2019 Gale Media, Inc.

Please do not reprint MDM's content on your website without MDM's express permission as it is copyrighted material. To gain permission, email us, or call 1-888-742-5060. For information on PDF or print reprints, visit www.mdm.com/reprints. MDM welcomes inbound links from your site. Please cite Modern Distribution Management.

2018-top-distributors-listThe 2018 Top Distributors List

This free PDF includes lists of top distribution companies across 14 sectors.

You will also receive MDM Update, our daily distribution e-newsletter & other distribution-focused content.

Download the Free PDF now >>


MDM-UpdateMDM Update: Daily Newsletter 

Sign up to read the best source for news & trends in wholesale distribution, MDM Update. Delivered daily to your inbox. 

Sign-up for MDM Update >>

Post a comment to this article

Partner Center