February 18, 2016

Why It’s Hard to Believe That ISM’s Manufacturing Survey Reflects Actual Conditions

Filed under: Economy — Tom @ 9:32 am

The Institute for Supply Management issues a monthly report on the state of manufacturing based on a survey of participating facilities. That survey has told us that manufacturing has been in a slight contraction for three months (48.2 percent in January, 48.0 percent in December, 48.6 percent in November; any value above 50 percent means expansion, while below 50 percent indicates contraction).

Before that, ISM claimed that manufacturing expanded for 35 consecutive months, and that it expanded during all but one or two months since late 2009.

The problem with ISM’s national survey is that other regional surveys, mostly done by the Federal Reserve, are decidedly more negative. Two of them came in this week.

This morning, the Philadelphia Fed survey reported contraction in manufacturing for the sixth straight month. That’s “the longest streak outside of a recesssion in history.”

On Monday, the New York Fed’s Empire Manufacturing survey reported contraction for the seventh straight month, and came in with its worst overall number in seven years.

Here are a few surveys from late January, found at this link:

This is by no means comprehensive, but all except Richmond are showing longer-term and more severe contractions than the national ISM survey.

As I’ve said before, I believe that the ISM national survey suffers from positive selection bias, i.e., the facilities which fill out the surveys are ones which are doing relatively well, while the ones which aren’t are more worried about figuring out how to survive in this miserable economy than completing ISM’s paperwork.

It’s also reasonable to contend that ISM’s national Non-Manufacturing Survey suffers from the same positive selection bias.

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1 Comment

  1. [...] as discussed a week ago, the Institute for Supply Management’s surveys seem to be suffering from positive selection [...]

    Pingback by BizzyBlog — February 25, 2016 @ 9:31 am

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