US equity markets have recovered after a series of corrections from the Institute for Supply Management (ISM) have brought the private group’s May manufacturing index in line with expectations. The ISM initially reported 53.2 for its May manufacturing index, down from 54.9 in April, startling investors and pushing the S&P 500 (INDEXSP:.INX) from 1924 to 1916 before analysts realized that something was wrong and the numbers were revisited. The ISM has since issued two corrections, first revising the survey up to 56 and then down a bit to 55.4.
ISM likely used April numbers for seasonal adjustment
“When I was first checking this out, I thought, ‘Wow, that’s a shocker. This is a bad report,’” said Stone McCarthy economist Ken Kim, who was able to quickly estimate the correct value of 55.4, reports Steven Russolillo for The Wall Street Journal. “When I started plugging in the numbers, it wasn’t adding up.”
Stone McCarthy tweeted that it appeared the ISM had accidentally used April seasonals to do the calculations, and ISM has confirmed that the mistake is related to seasonal adjustments but hasn’t yet clarified exactly what went wrong. The second mistake, posting that the May manufacturing reading was 56 instead of 55.4, is easier to understand – with the market falling and an error in people’s hands the ISM was probably in a rush to get the correction out as soon as possible – but posting such a disappointing result without someone double-checking it is surprising.
The ISM has apparently made similar mistakes in the past, once releasing the wrong survey (non-manufacturing instead of manufacturing) also causing confusion in the market.
Correct ISM survey shows that US manufacturing recovery is on pace
The good news is that US manufacturing is continuing to recover, even if the report wasn’t entirely positive. Production rose from 55.7 to 61.0 and new orders from 55.1 to 56.9, though backlogs fell from 55.5 to 52.5 and employment from 54.7 to 52.8.
While an ISM reading above 50 means that production is growing, the originally reported 53.2 was lower than expected and down month-on-month. Following the recent news that US GDP growth contracted 1% last quarter and months of disappointing housing data, another round of bad economic news could have been enough to force investors to reevaluate the strength of the US recovery.
“After last week’s slew of disappointing economic reports, this afternoon’s revision to the ISM provides some much needed reprieve,” writes Sterne Agee chief economist Lindsey M. Piegza.