While the manufacturing sector exhibited significant gains—the single largest increase since March 2003—the service sector showed modest growth, compared to January results. Favorable factors within both sectors exhibited economic expansion.

Click here for information about the methodology and factors used to measure economic performance.

MANUFACTURING SECTOR RESULTS


The manufacturing sector recorded a 510 basis point improvement in February. This is the single largest increase since March 2003. New credit applications and new sales lead the way with increases of 1,420 and 1,330 basis points, respectively. However, rejection of credit applications appears to be growing—the only negative factor.

SERVICE SECTOR RESULTS


The service sector showed slight improvement in February, increasing 80 basis points. Like the manufacturing sector, new credit applications and new sales contributed to the increase. Returning to November 2004 levels, all factors exhibit economic growth.

COMBINED SECTORS

*Note: The ISM Combined Sectors Index has been constructed as an equally weighted index of the manufacturing sector’s PMI number and the non-manufacturing sector’s business activity index.

COMPARISON OF February 2005 TO February 2004

In a year-to-year comparison, we find that half of the factors show positive or level growth. Within the manufacturing sector seven of the 10 factors show positive growth, while the service sector, nine of the 10 show some erosion.

METHODOLOGY APPENDIX

The CMI data has been collected and tabulated monthly since February 2002. The index, published since January 2003, is based on a survey of about 500 trade credit managers during the last 10 days of the month, with about equal representation between manufacturing and service sectors. The survey asks respondents to comment on whether they are seeing improvement, deterioration, or no change for various favorable or unfavorable factors. There is representation from all States, except some of the less populated such as Vermont and Idaho.

Factors Making Up the Diffusion Index (click here to view)

As shown in the table above, 10 equally weighted items determine the index. These items are classified into two categories: favorable factors and unfavorable factors. A diffusion index is calculated for each item with the overall CMI being a simple average of the 10 items. Survey responses for each item capture the change—higher, lower, or the same—in the current month compared to the previous month. For positive items, the calculation is:

Number of “higher” responses + ½ x number of “same” responses
Total number of responses

For the negative factors, the calculation is:

Number of “lower” responses + ½ x number of “same” responses
Total number of responses

Thus, greater “lower than a month ago” responses for negative factors signify improvement. Stated differently, a higher index score for an unfavorable factor represents an improvement.

A CMI reading in excess of 50 indicates the economy is expanding; a reading below 50 indicates a declining economy. The index is not seasonally adjusted because of lack of an historical record.

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