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ISM and New Factory Orders Charts Explained in Real Terms

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ISM New Orders Index Not Seasonally Adjusted

ISM New Orders Index Chart- Click to enlarge

The ISM not seasonally adjusted (in other words, actual) new orders index as of April 2012 has been diverging from the stock market as the growth rate of the US manufacturing sector slows. This suggests that the April factory orders data won’t show much growth when announced next month. The manufacturing sector represents about 11% of the economy. The services sector data representing the bulk of the US economy, normally released a few days after the manufacturing data, typically shadows this index closely.

Real New Factory Orders, The Stock Market, and The Fed

Real Factory Orders, The Stock Market, and The Fed
Real Factory Orders, The Stock Market, and The Fed - Click to enlarge

As of March, real factory orders, adjusted for inflation are now flat for the last 12 months. The much ballyhooed manufacturing growth is a media myth.  The trend was still up in February as the year to year line for that month shows. But than in March, that line turned flat. February was strong due in part to the warm weather. That robbed orders from March, leaving the trend flat for the last 12 months. Them message from the lower half of the chart is that if the Fed does not step on the gas, both the economy and the stock market are likely to stall out.  Whether the Fed pumps or not may depend on whether commodity prices cooperate.

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