ISM Data for July Point to Stronger U.S. Economic Growth in 2015 Q3

At the start of each month, the U.S. Institute for Supply Management (ISM) releases 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 U.S. real GDP growth and 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.

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. Since the ISM data are never revised, except for the annual updates of the seasonal adjustment factors, and very timely, the coincident economic index is a very useful real time forecasting tool that provides insightful intelligence and leading information on the near-term outlook for U.S. economic growth. Historically, the model has provided relatively accurate projections of U.S. real GDP growth for the next quarter.

U.S. Real GDP Growth Outlook

The value of the coincident economic index for July is used to get a forecast of the rate of growth in U.S real GDP for the third quarter of 2015. The official first estimate of real GDP growth for the third quarter will be released by the U.S. Bureau of Economic Analysis (BEA) on October 29th.

The forecast for the third quarter of 2015 is reported in Figure 2. The U.S. economy is projected to strengthen in the third quarter. Real GDP is currently projected to rise by 3.1% (annual rate) in the third quarter, up from 2.3% (advance estimate) in the second quarter. The projection for the third quarter will be updated on September 3rd and October 5th with the releases of ISM data for the months of August and September, respectively.

© Robert Lamy, The Forecasting Advisor.

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