John Silvia, Chief Economist

john.silvia@wachovia.com ● 704-374-7034

January 02, 2009

ISM Manufacturing: Economy Remains in Teeth of the Recession

December’s ISM manufacturing index came in at 32.4, well within recession territory and consistent with levels of
the 1980-82 recession period. Weakness remains in new orders, production and employment. The inventory
correction is ongoing. Prices paid fell sharply to 1949 lows and suggests lower inflation ahead.
Manufacturing Weakens as Production, Orders Decline Employment Weakness, Input Prices Lower
• The ISM manufacturing index slid to 32.4 in December which • Employment dipped to 29.9, which is consistent with continued
confirming recessionary conditions in the manufacturing losses of manufacturing jobs.
sector for the fourth quarter. • Inventory retrenchment suggests further production cuts
• Orders have slowed sharply since the June peak. This suggests ahead.
slower production going forward. Unfortunately, export • Prices paid fell again which is consistent with lower input
orders have also dipped, suggesting less support for GDP. prices for manufacturers.

ISM Composite Index and Industrial Production ISM Employment Index & Manufacturing Jobs
Index, 3-Month Annual Rate Index, Thousands of Jobs
65 15.0% 70 200
Monthly Change In Manufacturing Jobs In Thousands: Nov @ -85.0 (Right Axis)
65 ISM Manufacturing Employment: Dec @ 29.9 (Left Axis) 150
60 10.0%
60
100
55 5.0%
55
50
50 0.0% 50
0
45 -5.0% 45
-50
40
40 -10.0%
-100
35
35 -15.0% -150
Industrial Production - 3 Month Annual Rate: Nov @ -16.0% (Right Axis) 30
ISM Manufacturing Composite - 3 Month Moving Avg: Dec @ 35.8 (Left Axis)
30 -20.0% 25 -200
2000 2001 2002 2003 2004 2005 2006 2007 2008 1999 2001 2003 2005 2007

ISM New Orders and Non-Def Cap. Gds Orders Ex-Aircraft ISM Price Index and PPI - Finished Goods
Index, Percent Change
70 40% 100 8%

90
65 30% 6%
80
60 20% 4%
70
55 10% 2%
60

50 0% 50 0%

40
45 -10% -2%
30
40 -20% -4%
20
35 -30% Core Finished Goods PPI - 3 Month Annual Rate: Nov @ 3.9% (Right Axis) -6%
ISM - 12 Month Moving Average: Dec @ 42.2 (Left Axis) 10
Nondefense Orders - Yr/Yr % Change of 3 MMA: Nov @ -3.1% (Right Axis) ISM Prices Index: Dec @ 18.0 (Left Axis)
30 -40% 0 -8%
92 94 96 98 00 02 04 06 08 93 95 97 99 01 03 05 07

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