ISM Data and the Economy
The headline number in today’s report from the Institute for Supply Management was 51.2, the lowest reading in over three years and somewhat below the consensus economic prediction. Much of the punditry interpreted the data as confirming the weakness in the advance 3rd quarter GDP report, which showed annualized real growth of 1.6%.
This spin was repeated by various sources throughout the day. It appears that no one actually bothers to read the actual report from the ISM, which clearly states the following:
"…if the PMI for October (51.2 percent) is annualized, it corresponds to a 3.1 percent increase in real GDP annually."
Readers of "A Dash" were already prepared for this by the "Heads Up" article on this topic we posted last month.
For the ISM series to be consistent with the current rate of economic growth, we should expect a decline below 50. Zero growth occurs at a reading of 42.
The reason? While manufacturing gets special interest from investors, it is not the entire economy.