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What Led to the Decline of the ISM New Orders Index in April?

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May. 22 2018, Updated 9:02 a.m. ET

ISM New Order Index

The Institute of Supply Management (or ISM) publishes a monthly manufacturing (FIDU) report on changes to new orders, supplier deliveries, inventories, production, and employment. This diffusion index draws on data collected by means of a monthly survey comprising of inputs from 400 industries (XLI) in the US. Participants of the survey rate the conditions for their respective industries (VIS) as either good or bad. The institute constructs 11 indexes using this survey and the ISM new orders index captures the changes in the level of new orders at the producer (RGI) level, which acts as an important forward indicator and thus finds its place in the Conference Board Leading Economic Index (or LEI). The ISM new orders index has an overall weight of 15.9% on the Conference Board Leading Economic Index.

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Recent data release

The ISM New Order Index for April was reported at 61.2, which represented the fourth consecutive monthly decline for the index. This is a diffusion index, and as long as the reading is above 50, it signals expansion. The index peaked in December 2017 and has been in expansion territory in the last 28 months. A healthy level of new orders is positive for the economy (ITOT), and the current reading signals continued improvement in the sector. This economic indicator had a net positive impact of 0.12, or 12%, on the April LEI reading.

Impact of ISM Index on the markets

The ISM index is one of the first indicators to be reported each month and impacts the market trend at the beginning of the month. This index has been on the expansion side (above 50) since September 2016, and the decline of the ISM New Order Index in the last four months can still be considered as normalization, as the reading is comfortably above 50. In the next part of this series, we’ll discuss the continued improvements in new orders for nondefense and capital goods.

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