How Bad is the ISM Report?


	How Bad is the ISM Report?

Willow Street

2-6-2008 12:59 AM

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<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://www.clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/e619e9c9-31a5-4ed7-b060-ebb5b7a41ec5/E8E9EC85-9367-40B2-B8A0-17A11817DD89/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/" href="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/" style="font-size: 11px;">krugman.blogs.nytimes.com</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/">The ISM non-manufacturing report came in today, and it’s bad. As I suggested in an <A href="http://krugman.blogs.nytimes.com/2008/02/05/services-take-a-plunge/">earlier post</A>, we should take this seriously: the same report called the upturn in employment in summer 2003, so the fact that it has fallen off a cliff should worry us.</blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/">But how bad is it? The latest report has an employment diffusion index of 43.9 (50 means no change, anything less than 50 means job contraction). Here’s the historical relationship between the index (horizontal axis) and the actual monthly change in employment, in thousands (vertical axis), data since July 1997. If this report is at all right, we’re in serious recession territory.</blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/"><div align="center"><img src="http://content8.clipmarks.com/blog_cache/krugman.blogs.nytimes.com/img/CE1D3C39-5105-4067-A3DC-27C3DB84F25B" alt="INSERT DESCRIPTION" /></div></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://krugman.blogs.nytimes.com/2008/02/05/how-bad-is-that-ism-report/"><P><STRONG>Add</STRONG>: As explained above, the horizontal axis is the ISM employment index, the vertical axis is the change in nonfarm employment over the following month. Fwiw, the best-fit relationship says that this month’s report portends a loss of 137,000 jobs next month. You don’t want to take that too seriously, but it’s appropriate to cry “eek”.
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