Media Gets It Wrong on Manufacturing
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Yesterday's ISM manufacturing report was quickly derided by the media as showing economic weakness and a possible sign of a double-dip recession.  The Drudge Report posted a headline proclaiming "manufacturing drops to lowest level in two years," and Yahoo! and various other outlets posted similar headlines. 

The fact is that the ISM manufacturing report showed the index fell to 50.9 in July.  While this is the lowest index level since July 2009, it is wrong to draw the conclusion that manufacturing activity fell to the lowest level in two years.  That's a complete misunderstanding of the data.  The ISM index does not track the overall level of manufacturing activity.  It's designed to show growth if the index is above 50 and contraction if the index is below 50.  Including yesterday's report, the ISM manufacturing index has stood above the all important 50 level for 24 consecutive months, telling us manufacturing has been growing for two years, without a single contraction.

Industrial production data from the Federal Reserve make this clear since the index tracks the actual level of manufacturing output.  The chart above clearly shows manufacturing is nowhere near a two year low.  In fact, it has been growing steadily for over two years, and the level of activity is well above the low of 2009.  This confusion by the media shows what happens when reporters try to be economists.
Posted on Tuesday, August 2, 2011 @ 10:56 AM

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