ISM Commodity Survey

by Bespoke Investment Group

In each month's Manufacturing Report on Business, the Institute for Supply Management (ISM) publishes the results of its monthly commodities survey where it asks respondents which commodities are rising in price and which are declining. In this month's survey, 19 commodities saw price increases while 5 showed decreases.

The month of June certainly saw a large drop in the number of commodities seeing price increases. In May's report, there were 37 commodities that were reported as having price increases, while only two saw decreases. On a net basis, the number of commodities rising in price during the month of June dropped from 35 down to 14. This represents the second largest monthly decline (-21) going back to 1999, and it brings the three month average down to 29 from just under 36.

The largest monthly drop came in May 2005 (-23). Interestingly, that drop also followed a decline in the S&P 500 of about 7% due to investor concerns over a period of weak economic data. The May 2005 ISM report shows comments that could easily be applied to the current economic climate:

• "Adjusting inventory by reducing run schedules."
• "Steady, but seems to be softening."
• "Automotive business is down; new orders and bookings are down."
• "Price pressure continues, but seems to have plateaued. Despite warnings, we have not experienced any shortages or availability issues."

As unwelcome as price increases are, they are more often associated with economic strength rather than weakness, so in that respect this month's drop in the number of commodities showing price increases is a negative. What makes us more comfortable, however, is the fact that the actual headline PMI reading in the report was stronger than expected and above last month's level.

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