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By Sara Haire and Holly Stokes
     WASHINGTON (MNI) - The ISM Manufacturing Index will be released Thursday,
with the median forecast among analysts in an MNI survey expecting 58.8,
following 59.3 in December. 
     Ahead of the release, we outline five themes for particular attention. 
-- TENDENCY TO UNDERESTIMATE
     MNI calculations and past surveys show an upside risk to analysts' median
estimate. In the past 10 years, analysts have underestimated January ISM
manufacturing 6 times. Further, in the past 10 years the underestimates have
missed by a greater amount, 2.7pp compared to the 1.7pp average miss by
overestimates. 
-- MARKET'S TRACK RECORD 
     The whisper number, at 59.8, is 1pp higher than analysts' expectations. In
the past year, both the whisper number and analysts have tended to underestimate
ISM manufacturing, with the whisper number underestimating seven times and
analysts underestimating 9 times.  The absolute average miss for the whisper
number is 1.6pp, while the survey has been a bit more accurate with an absolute
average miss of 1.3pp. However, the average miss for underestimates is again
larger than the average miss for overestimates for both the whisper number and
survey: the average underestimate for the whisper number is 1.8pp and 1.4pp for
the survey, while the average overestimate for the whisper number is 1.2pp and
1.3pp for the survey. This, again, suggests a small upside risk to the
forecasts.
-- ISM FOLLOWING HURRICANES 
     Three of the five regional fed surveys are pointing to a decline in ISM. In
the past year, ISM has followed closely on trend with New York's Empire
manufacturing index. However, after the hurricanes, ISM broke through a 13 year
high with a 60.8 reading in September, this also happens to be when the two
surveys diverged.  ISM's record high for the manufacturing index was attributed
to the hurricane aftermath. ISM and Dallas Surveys fell because of shortages and
backlogs due to recovery efforts. Once the disruptions were dealt with, the
Dallas region reported increases in new orders, prices for input costs and
materials, and production. ISM and the Dallas Manufacturing Index has since been
on similar paths. Expect in the coming months that ISM will return to the
pre-hurricane trend.  
-- PRICES TO CONTINUE TRENDING HIGHER
     Last month, the price index showed higher raw material prices for the 22nd
consecutive month. With surveys such as the NABE Business Conditions Survey and
Beige Book reporting increased input costs in the manufacturing sector into
January, the price index likely continued its upward trend. Given the
relationship between ISM's price index and the percent change in PCE price
index, another strong print for the price index could be seen as an early sign
of continuing inflation in January and help support arguments for a March rate
hike.
-- CONTINUED EXPANSION 
     According to the Institute for Supply Management, a PMI above 43.3
indicates that the overall economy is in expansion. In December, it was noted
that the strong 59.3 print meant the 103rd consecutive month of expansion -
which would suggest economic growth since June 2009. If the median forecast is
correct at 58.8 print, well above the 43.3 break even mark and above the 57.4
average for 2017, it would serve as an early signal of a strong start for the
first quarter and reaffirm optimism for above 3% GDP growth. 
--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com
[TOPICS: MAUDS$,M$U$$$]