ISM Manufacturing Index: Mar 2014 Preview

The ISM Manufacturing Index is expected to remain unchanged at 53.2 in tomorrow’s update for March vs. the previous month, based on The Capital Spectator’s median econometric forecast. Meanwhile, this median projection is moderately below three consensus forecasts via surveys of economists.

Here’s a closer look at the numbers, followed by brief summaries of the methodologies behind The Capital Spectator’s projections:

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VAR-1: A vector autoregression model that analyzes the history of industrial production in context with the ISM Manufacturing Index. The forecasts are run in R with the “vars” package.

VAR-6: A vector autoregression model that analyzes six economic time series in context with the ISM Manufacturing Index. The six additional series: industrial production, private non-farm payrolls, index of weekly hours worked, US stock market (S&P 500), spot oil prices, and the Treasury yield spread (10 year Note less 3-month T-bill). The forecasts are run in R with the “vars” package.

ARIMA: An autoregressive integrated moving average model that analyzes the historical record of the ISM Manufacturing Index in R via the “forecast” package.

ES: An exponential smoothing model that analyzes the historical record of the ISM Manufacturing Index in R via the “forecast” package.

TRI: A model that’s based on combining point forecasts, along with the upper and lower prediction intervals (at the 95% confidence level), via a technique known as triangular distributions. The basic procedure: 1) run a Monte Carlo simulation on the combined forecasts and generate 1 million data points on each forecast series to estimate a triangular distribution; 2) take random samples from each of the simulated data sets and use the expected value with the highest frequency as the prediction. The forecast combinations are drawn from the following projections: Econoday.com’s consensus forecast data and the predictions generated by the models above. The forecasts are run in R with the “triangle” package.

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