Should Investors Worry about New Orders Trending Lower?
New Orders Index
The Institute for Supply Management (or ISM) collects data from 400 industries across the United States to construct its New Orders Index. The monthly index, which tracks changes in new orders, is a diffusion index, which means it tracks differences between the number of positive and negative responses. A reading above 50, which means more than 50% of companies surveyed reported an increase in new orders, is considered positive. As a continuous fall in this index is considered a red flag for the economy, it is a part of the Conference Board LEI (Leading Economic Index).
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Recent data release
In August, the ISM New Orders Index stood at 60.3, compared with 60.4 in July. If the reading remains above 50, there is no reason to worry. The index has a weight of 15.9% in the LEI and contributed 0.10, or 10%, to it in August.
Effect on the markets
This index, one of the few indicators reported at the beginning of the month, sets the pace for markets (SPY) (QQQ). Its effect on markets (ITOT) (VTI) is limited if it is below 50. Volatility (VXX) or a reading below 50 suggests that the economy is heading towards a recession.