ISM Indexes

The Institute for Supply Management maintains two indexes, one for the manufacturing sector and a non-manufacturing index that measures service industries. Based on surveys of purchasing managers, these indexes are early indicators of inflection points in the economy. Both indexes confirm the recent economic slowdown with manufacturing taking a big plunge last month and non-manufacturing dropping sharply in April before recovering slightly in May. Both indexes remain above 50, the threshold that indicates expansion. The new orders component of the indexes, a leading indicator of future production and shipments, suggests further deceleration for manufacturing while non-manufacturing industries could see a modest rebound. The ISM indexes are in line with other recent indicators pointing to slower growth – employment, housing, consumer confidence and GDP. The economy's abrupt loss of altitude is due to several factors: high gas prices, supply chain disruptions from the disasters in Japan, slower growth in emerging markets as their central banks raise interest rates to battle inflation, and the unstable outlook in the eurozone. For commercial real estate, slower economic growth translates into slower leasing activity (a minus), but it is being accompanied by falling interest rates (a plus). A near-term recession is unlikely, but growth could remain sluggish through the summer and early fall.