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What Led to the Rebound of ISM New Orders Index in May?

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ISM New Orders Index

The ISM (Institute of Supply Management) publishes a monthly manufacturing (FIDU) report on changes to new orders, supplier deliveries, inventories, production, and employment. About 400 industries (XLI) are surveyed for inputs to construct this diffusion index. Participants of the survey rate the conditions for their respective industries (VIS) as either good or bad. 

Eleven indexes used these survey results, and the ISM New Orders Index captures the changes in the level of new orders at the producer (RGI) level. This acts as an important forward indicator and finds its place in the Conference Board LEI (Leading Economic Index). The ISM New Orders Index has an overall weight of ~15.9% on the Conference Board LEI.

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Recent data release

The ISM New Order Index for May was 63.7, rebounding after four consecutive monthly declines. However, it was still below the December peak of 67.4. This index is a diffusion index, meaning any reading above 50 is a positive indicator, with May being the 28th consecutive month of expansion. 

Increasing levels of new orders are positive for the economy (ITOT), and the current trend signals a strong outlook for the sector and the economy. This economic indicator had a net positive impact of 0.17 (17.0%) on the May LEI reading.

Impact of ISM Index on the markets

The ISM Index is among the first set of economic indicators reported every month and usually sets the tone for the markets. With the focus now on trade tensions, there was limited impact on the markets after the ISM report. However, continued improvement in the index is typically a positive sign for the economy. 

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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