If you’ve been watching blogs such as Spend Matters and Supply Excellence, you know that I am a critic of the Institute for Supply Management’s Purchasing Manager’s Index as an economic indicator.
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But, finally, some financial analysts are realizing how suspect (at best) ISM’s index really is. In today’s New York Times’ article entitled “Dow Plunges of Survey of Business,” Julian Jessop of Capital Economics said “One extreme number on its own is not a reliable recession signal…It is so out of line with other January indicators that it is hard to know whether or not to believe it.”
I don’t doubt that the economy is experiencing a slowdown. But the crazy drop in the ISM index (over 16% from December 2007 to January 2008) is simply outlandish.
I’m glad that the financial analysts are finally starting to see the flaws in ISM’s index. I think that in the near future either ISM will make some changes to its index to make it a better indicator or Wall Street and the media will stop paying attention to it.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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Comments
Gee, he wouldn’t be saying that about ISM because he’s the president of a competing organization would he? I’ll agree that ISM’s index is not perfect, none are. But economic indicators such as the PMI are the tools that need to be read as part of a greater whole in order to make sense of our economy. The PMI’s chief weakness is it’s lack of complete information about the economy… it’s too focused in the areas where the organization has strong local chapters. However, it’s biggest strength is that it is future oriented and as such, a very valuable tool in the indicating the overall direction of our economy. Is it perfect? No. but until Mr. Dominick learns how to read the index properly, he should keep his blogs to himself so that his ignorance isn’t as obvious to the rest of us. something better to offer, I suggest he
Without going into my background with ISM’s Report on Business, let’s just say that I have a better understanding than most with regard to knowing how to read the index.
I’m glad that our fearlessly anonymous commenter mentioned the “strength” of the index being its future orientation and ability to indicate the economic direction. When time permits, I will demonstrate exactly why this is so opposite from the truth. And there will be plenty of evidence to back it up.
I agree with Charles. Its odd to point out that the default value of any indicator is that its “future oriented”…that’s the definition for god sakes. I too have an idea as to the make up of this indicator’s constituency and the sevices portion has very little credibility on the basis of its makeup.