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Wednesday, February 01, 2012

ISM Seasonality

by Calculated Risk on 2/01/2012 12:09:00 AM

This is technical. Earlier this month there was some discussion about how the ISM manufacturing survey might be overstating the strength of manufacturing in December due to some seasonal adjustment issues. Here was a story from FT Alphaville: ‘Tis (still) the seasonality, ISM edition

Today the ISM addressed this issue and released some revisions: ISM Report On Business® Seasonal Adjustments 2012

Seasonal adjustment factors are used to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-movable holidays. It is standard practice to project the seasonal adjustment factors used to calculate the indexes one year ahead (2012).

This year's seasonal factor revisions include greater attention to two areas: series with marginal seasonality and with improved outlier detection. Due to this focus, the Department of Commerce recommended that ISM no longer seasonally adjust the ISM Manufacturing Inventories Index. Additionally, they recommended making revisions to all seasonally adjusted data for a longer time period than what ISM has typically done in the past.

In response to concerns that the unusually large declines in autumn 2008 associated with the recent recession that may not have been adequately handled with default settings, this year the Department of Commerce used lower thresholds (critical values) for detecting outliers. As a result of moving averages, these changes in outlier detection affected seasonal factors both before and after 2008; therefore, ISM is making revisions to seasonally adjusted data for the past seven years rather than the customary four-year period.
For December, the ISM PMI was revised down to 53.1 from 53.9.

For January, the consensus is for a reading of 54.5, and this revision probably means the ISM PMI released Wednesday will be a little lower than consensus.