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Should We Worry about a Drop in New Orders?

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Aug. 28 2017, Updated 8:07 a.m. ET

New Orders Index

The ISM[1.Institute for Supply Management] New Orders Index tracks changes in the number of orders across 400 industrial companies. The ISM conducts a monthly survey to monitor changes in employment, production, inventories, supplier deliveries, and new orders. It is a diffusion index, meaning it tracks the net difference between the number of positive and negative responses. A monthly reading above 50 indicates that the number of orders has increased from the previous month. As a change in the number of new orders can help predict future economic performance, this index is a component of the Conference Board Leading Economic Index (or LEI).

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Recent data released

In July, the ISM New Orders Index stood at 60.4, compared with 63.5 in June. Generally, if the index reading is above 50, investors need not worry about a slowdown in economic growth. The ISM New Orders Index had a net positive contribution of 0.10 points, or 10%, to the LEI in July.

Impact of the ISM New Orders Index on markets

The ISM New Orders Index report, released in the first week of the month, sets market (SPY) (QQQ) expectations. The index’s impact on market (ITOT) performance weakens as it departs from a score of 50, while volatility (VXX) in the markets (VTI) increases as the reading approaches 50. A continuous reading below 50 suggests the economy is headed for a recession.

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