The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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October 02, 2008

The ISM Index breaks the magic number

If you are weary of troubling news from the financial sector, the week thus far has provided no relief in the form of good news from the economy’s real side. Monday brought troubling signs from the August report on income and consumption, Tuesday more of the same dismal adjustment in house prices, and yesterday an eye-opening ISM manufacturing report that elicited the following sort of headlines (to which I’ve added the emphasis):

Stunning Decline in Manufacturing Sector (Mark Thoma, channeling Real Time Economics)

ISM manufacturing index plunges (Calculated Risk)

ISM Implodes (Mike Shedlock)

No doubt about it, a 6.4 index-point drop in one month gets people’s attention. How unusual is that large a change in the index? Pretty unusual:

Changes in ISM Index

Even so, the more important part of the story may be the level to which the index fell:

ISM Index

The index now stands at 43.5. Over the past 30 years, index levels below 45 have not failed to be associated with a recession, either contemporaneously or with a short lag. Throw that and the other indicators of the week in with the most recent “freefall” in auto sales, and it’s enough to make some smart guys despair.


October 2, 2008 in Data Releases , Economic Growth and Development , Labor Markets | Permalink


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I think the Fed needs to reprise Operation Twist, the open market operation they performed in the 1960s by SELLING T-bills and BUYING 5-year treasury notes.

The markets are screaming for this.

Matt Dubuque

Posted by: Matt Dubuque | October 02, 2008 at 08:24 PM

In other words, the elite economists of the USA, given vast data, computers and years of really, really hard training, have concluded that there's a good chance that we're in a recession.

Posted by: Barry | October 03, 2008 at 01:00 PM

Is your sense that this decline is due to the credit crunch or could it be related to something else, e.g., a strengthening dollar leading to a decline in exports?

Posted by: DaveinHackensack | October 03, 2008 at 11:36 PM

Just look how steep and sudden that drop is. Amazing, but I am afraid it'll continue to drop for quite a while.

Posted by: Rjecnik | October 17, 2008 at 02:11 AM

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