US October ISM Manufacturing preview: regional PMIs suggest a small upside risk vs bloomberg consensus
Posted on October 30th, 2015
Bottom line: the average of forecasting models suggest October ISM Manufacturing at 50.6, a bit above market consensus of 50.0. Looking only at the regional PMIs suggest ISM @50.5.
With all the key regional PMI's and the flash Markit PMI already released let's take a look at what can be inferred for the ISM. The chart below plots the ISM against the first principal component of all the remaining PMI's (also adding the GSAI - Goldman Sachs Analyst Index). It suggests October ISM at 50.5, a bit above market consensus.
Expanding the analysis, one can torture the numbers to come up with several competing forecasting models. This can range from simple Box-Jenkins and univariate time series filters to models using the principal components of regional PMI's and a mix of both.
Important to note that a simple random-walk forecast for the ISM Manufacturing is very competitive in terms of the measures of forecasting accuracy.
The literature on forecasting often suggest that combining different forecasting models produces, on average, better forecasts -- so let's give it a try.
Table below show the average point forecast for June's ISM Manufacturing as well as the range of point forecasts provided by the models I've tried.
Important: do not confuse this range with forecasting uncertainty; the error margins of the forecasting models are well wider than what is implied in the range of point forecasts.
Average forecast | Point forecast range | Bloomberg survey | Bloomberg range | Actual | |
Sep 2014 | 59.1 | 58.3-60.6 | 58.5 | 57.0-60.0 | 56.6 |
Oct 2014 | 57.4 | 56.5-60.2 | 56.2 | 55.0-58.6 | 59.0 |
Nov 2014 | 58.0 | 57.2-59.0 | 58.0 | 54.5-61.0 | 58.7 |
Jan 2015 | 54.3 | 52.9-55.6 | 54.5 | 52.0-56.5 | 53.5 |
Mar 2015 | 52.1 | 49.6-52.9 | 52.5 | 49.5-55.0 | 51.5 |
Apr 2015 | 51.4 | 50.2-52.4 | 52.0 | 50.3-54.0 | 51.5 |
May 2015 | 51.1 | 49.6-52.3 | 52.0 | 50.0-52.5 | 52.8 |
Jun 2015 | 53.0 | 51.4-53.9 | 53.2 | 52.0-55.0 | 53.5 |
Oct 2015 | 50.6 | 50.1-52.3 | 50.0 | 48.9-51.5 |