Institute for Supply Management (ISM) Manufacturing Survey

1. Institute for Supply Management (ISM) Manufacturing Survey Published by: Institute for Supply Management Frequency: Monthly Period Covered: Prior Month Market Significance: Very High Web Site: http://www.ism.ws Presented by: Jesse Garate Victor M Lorenzo

2. What is it? • Manufacturing survey • Tempe-Arizona-based group that represents corporate purchasing managers around the country • Two major surveys: Comments from Manufacturing and Non-Manufacturing sectors • Purchasing managers are asked to assess if activity is rising, falling or unchanged: • Questionnaires are sent out every month to about 400 companies, representing 20 different industries • Survey results come out on the first business day of every month

3. What is in the report? The report is broken down in the following fields: New Orders- New orders by purchasing agents Production- Manufacturing output Employment- Hiring in the company Supplier deliveries- Speed of the delivery from suppliers Inventories- The rate of liquidating manufacturers’ inventories Customer’s inventories- Agents guess the inventory levels of their customers Commodity prices- Prices paid by the manufacturing for suppliers Backlog of order- Orders not yet filled New Export orders- Rate of new orders from other countries Imports- Material that agents purchased from other countries

4. What is in the report? The PMI is a composite index based on the seasonally adjusted diffusion indices for five of the indicators with varying weights: New Orders 30% Production 25% Employment 20% Supplier Deliveries 15% Inventories 10% PMI is calculated as a diffusion index, which shows changes in activity from month to month showing the prevailing direction of change and the scope of change, but does not show actual levels of production

5. How is it computed? ISM takes the  of those who reported higher activity and adds 50  of those who reported no changes Example: 50 % reported no change and 29.7% reported higher activity. 1)We take 50% of those who reported no change: .50 x .50= 25% 2) We add 25% to those who reported higher activity: 25% + 29.7%= 54.7%

6. Why is it important? Considered as the most reliable short-term economic barometer Overall PMI gauges turning points in the business cycles and closely linked to movement in the GDP ISM Index is a leading indicator of economic activity Since it covers 20 different industries, it gives clues as to the greatest sources of strength and weaknesses in the economy Which sectors are growing? Which are hiring? Which are feeling the inflation pinch? Timeliness: Results are in first business day of every month

7. Keys to interpreting the data The PMI benchmark that is used to measure economic activity is 50 Index > 60 (sustained basis 3 to 6 months): Both manufacturing and the economy showing vigorous growth and low unemployment could prompt the FED to increase rates. Index > 50 but < 60: Both manufacturing and the economy are expanding Index = 50: No change In activity. It is believed to be consistent with real GDP growth of about 2.5%. Index < 50 but > 43: Manufacturing activity is contracting, yet the overall economy may still be growing Index < 43 (sustained basis 3 to 6 months): Mfg and economy likely to be in recession. Could prompt the FED to lower rates.

8. Historical Data 1999-2002

9. Historical Data 2003-2007

10. PMI vs. GDP

11. Latest Release

12. Data Analysis Based on the information from this indicator, we conclude: -The economy is expanding slightly faster -We foresee the FED to either stay at current interest rate of 5.25 or slightly increase it