August 4, 2010

The Data vs. ISM: A Request for Answers

Filed under: Economy,Taxes & Government — Tom @ 6:41 pm

I mentioned at the end of this post last week that “Something funny may be going on in manufacturing reporting.” Well, not ha-ha funny, unusual funny.

What seems quite unusual is that the Institute for Supply Management’s Manufacturing indices for both June (56.2%) and July (55.5%) are firmly in expansion while a wave of information from elsewhere is telling us that it’s not. Captain Ed at Hot Air cited one example yesterday via the Commerce Department — ” Manufacturing fell 1.2%, which followed a 1.8% decrease in May.” These are pretty steep drops in the wake of firmly positive ISM reports, and few think July was much if any better.

It’s also true but possibly less odd, because the contrary info from elsewhere isn’t as strong, that the Non Manufacturing indices for June (53.8%) and July (54.3%) also show pretty good expansion.

So rather than speculate, I decided to address the following e-mail to ISM:

SUBJECT: Information Request

Ms. Goupil:

I’ve been following the ISM Manufacturing and Non Manufacturing Indices (and the NMI’s predecessor) for about five years, and am concerned how they currently diverge from government and other data.

I realize that both indices are of sentiment and that because of that factor alone they won’t necessarily mirror data published elsewhere.

That said, here are my questions:

1. Has the design of the monthly surveys purchasing managers complete for either of these indices changed at all during the past two years? If so, how?

2. How would you characterize the make-up of the companies who report? Would you say they are predominantly large firms, a fairly representative sample of firms, or predominantly small firms?

3. Is there a publicly available list of firms participating in each survey?

4. (I believe this is an uncomfortable but necessary question) What assurance can you give the public that your organization’s chairman, Shelley Stewart, Jr., who donated $7,100 to various campaign committees supporting Democratic candidates in 2008, including $3,300 to funds supporting Barack Obama’s campaign, has had no influence on survey design, or the methods ISM is employing to obtain, compile, calculate, or present its indices?

5. If it is indeed the case, why was the ISM not concerned about Mr. Stewart’s political contributions when it named him chairman in February 2009?

6. What is the ISM’s explanation for the current difference between its expansionary indices, especially in manufacturing, and data from the government and other sources indicating that economic activity is at best recovering weakly and at worst contracting?

I am publishing this list of questions today, and will create a follow-up post with or without your answers. I will publish that follow-up post either shortly after I receive your e-mailed response, or on Monday, August 9 if I have not received an e-mail response from you by then. Please do not call me, as I expect an on-the-record response.

Tom Blumer

I’ll let everyone know when I get an answer, or on Monday if I don’t.


1 Comment

  1. [...] intended to post on any response or non-response I might have received to the e-mail contained in this post from last Wednesday (”The Data vs. ISM: A Request for [...]

    Pingback by BizzyBlog — August 9, 2010 @ 3:19 pm

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