ISM Manufacturing PMI

The ISM Manufacturing PMI is compiled from responses by purchasing and supply executives at several hundred US factories. Each is asked whether things such as new orders, production, employment, supplier deliveries and inventories were higher, lower or unchanged compared with the previous month. The answers become diffusion indexes, and the headline PMI is a weighted composite of five of them. A reading above 50 indicates that more firms reported improvement than deterioration.

Its appeal is timing. It arrives on the first business day of the month, before any official data for the period, and has a long record going back to the 1940s. Components are studied closely: new orders relative to inventories is watched as a leading signal, the prices-paid index as a gauge of pipeline inflation, and the employment index as a hint ahead of payrolls. A headline surprise has historically tended to move Treasury yields, the dollar and cyclical equities, while the prices component has at times moved rate expectations independently.

As a survey of direction rather than magnitude, the index can overstate or understate turning points; a reading just below 50 does not necessarily mean output is falling. Supplier deliveries are included with an inverted logic, since slower deliveries usually signal strong demand, but in supply shocks they can flatter the headline. Seasonal factors are revised each January.

Manufacturing is a small share of US output, so the index is often read alongside the S&P Global US Manufacturing PMI, regional Fed surveys and the ISM services index two days later.