ISM Data for January and February Point to Modest U.S. Real GDP Growth in 2015 Q1

At the start of each month, the U.S. Institute for Supply Management (ISM) released data on the state of the manufacturing and non-manufacturing industries of the U.S. economy. The data are closely followed by economists, stock market brokers, and the media as they provide the earliest reading on the current state of the economy. The ISM provides data on the current performance of a number of indicators related to the manufacturing and non-manufacturing industries, such as production, employment, new orders, and backlog of orders, deliveries, inventories, new exports, imports, and prices. Figure 1 plots the evolution since the first quarter of 1998 of a proprietary coincident economic index from The Forecasting Advisor, built from a number of indicators from both the survey on manufacturing and non-manufacturing industries, and U.S. real GDP growth.

The aggregation of indicators from both surveys into a coincident economic index provides a close relationship with historical movements in real GDP growth. In other words, the Figure suggests that the coincident index contains useful information on the actual strength of economy. Because the ISM data are never revised, except for the annual updates of the seasonal adjustment factors, the coincident economic index is a useful real time forecasting tool and provides valuable, timely, and leading information on the near-term outlook for the pace of economic growth.


U.S. Real GDP Growth Outlook

The average value of the coincident economic index for the months of January and February is used to get a forecast of the rate of growth in U.S real GDP for the first quarter of 2015. The official advance estimate of real GDP growth for the first quarter of the year will be released by the U.S. Bureau of Economic Analysis on April 29.

The forecast for the first quarter of 2015 is reported in Figure 2. The U.S. economy is expected to post a second consecutive modest gain in the first quarter. Indeed, real GDP is currently projected to rise by 2.1% (annual rate). In the fourth quarter of 2014, the rate of growth in the economy slowed sharply to 2.2% (annual rate, preliminary estimate) from the very strong gains posted in the previous two quarters.

© Robert Lamy, The Forecasting Advisor.

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