REPEAT: MNI: 5 Things To Look For: US ISM Manufacturing Index

Repeats Story Initially Transmitted at 20:40 GMT Jan 31/15:40 EST Jan 31

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