The ISM Manufacturing Survey Points to Imminent Economic Recovery, Possibly in 2009
The April survey results of the ISM Manufacturing Survey results indicate that the factory sector is contracting but the pace of contraction has slowed significantly. The composite index (PMI) rose to 40.1 in April from 36.3 in March. Indexes below 50.0 denote a contraction in activity but indexes moving toward 50.0 imply a deceleration in the pace of factory activity. The cycle low for the composite index is the December 2008 reading of 32.9.
Indexes tracking new orders, production, employment, supplier deliveries, inventories, backlogs, prices, exports, and imports advanced in April, but each of them still remains below 50.0.
The important aspect of this survey is that the Supplier Deliveries Index is one of the components of the Index of Leading Economic Indicators, our preferred indicator that forewarns about turning points of a business cycle. The New Orders Index is another is reliable leading indicator of the survey. Charts 2 and 3 show that the New Orders Index and Supplier Deliveries Index are both leading indicators of turning points of a business cycle. However, there is a variation in the number of months they lead the business cycle (see table 2). In the current cycle, the Supplier Deliveries Index appears to have established a trough in March 2009, while the tentative trough for the New Orders index appears to have occurred in December 2008. If history is a guide, the details of table 2 indicate that the horse race between these indexes is very close. The important conclusion we can draw from the historical comparison is that the trough of the current business cycle is most likely not too far way.
Auto Sales Edged Down in April
Sales of auto fell to an annual of 9.3 million in April, down from 9.8 million in March. The April tally of car sales is consistent with forecasts of a decline in consumer spending in the second quarter.
