LEGISLATIVE REPORT

manufacturing sector before they appear in government economic data, individual components of the index are useful to predict future growth or contraction. For example, the price index is considered by many to be a good fi rst indication of future infl ation or defl ation. Th e new orders and supplier deliveries indices are also leading indicators and off er some insight into the likelihood of future growth or contraction in manufacturing production and, consequently, demand for paper packaging in the next few months. Th e diff erence between the new orders diff usion index and the inventory index is a good proxy for future manufacturing production and packaging demand, because both rising new orders and declining inventory levels suggest the need to step up production in the future months. A chart of trends in this indicator is shown in the chart below.

For those who desire a deeper look into the conditions of manufacturing activity, the Report on Business provides additional data for analysis. Each month, commodities reported up or down in price or in short supply are listed. In addition to the aggregated survey percentage responses, each report lists the manufacturing industries that are reporting growth or contraction in each of the manufacturing activities listed above.

In addition to data relating to the component indices, the monthly report contains representative respondents’ commentary regarding market conditions. Average lead times for capital expenditures, production materials, and maintenance, repair, and operating supplies are provided along with percentage of respondents reporting.

With all this data provided monthly on the manufacturing sector by the ISM, it is very tempting to fall into the trap of believing that one month’s change provides by itself a forecast for the future. Assessing and reacting to the trends, not monthly changes alone, provides the most meaningful interpretation of the available data and off ers independent paper packaging converters the opportunity to draw independent conclusions regarding the future course of the manufacturing sector and the U.S. economy. 

Dick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.