Table of Contents
The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) Report on Business is a vital economic indicator that provides insights into the health of the United States’ manufacturing sector. It is based on data collected from purchasing and supply executives in over 400 industrial companies. This data is gathered monthly through a survey that includes several key indicators.
The ISM, formerly known as the National Association of Purchasing Management (NAPM), has conducted this survey since the end of World War II. It targets over 400 companies across twenty manufacturing industries in all fifty states. Executives are asked about various factors, including new orders, production, employment, inventories, order backlogs, and imports. The responses are then compiled into diffusion indices for each variable.
Please check Table:
| Release Date | Time | Actual | Forecast | Previous |
|---|---|---|---|---|
| Jul 01, 2024 (Jun) | 10:00 | 48.7 | ||
| Jun 03, 2024 (May) | 10:00 | 48.7 | 49.8 | 49.2 |
| May 01, 2024 (Apr) | 10:00 | 49.2 | 50.0 | 50.3 |
| Apr 01, 2024 (Mar) | 10:00 | 50.3 | 48.5 | 47.8 |
| Mar 01, 2024 (Feb) | 11:00 | 47.8 | 49.5 | 49.1 |
| Feb 01, 2024 (Jan) | 11:00 | 49.1 | 47.2 | 47.1 |
| Jan 03, 2024 (Dec) | 11:00 | 47.4 | 47.1 | 46.7 |
| Dec 01, 2023 (Nov) | 11:00 | 46.7 | 47.6 | 46.7 |
| Nov 01, 2023 (Oct) | 10:00 | 46.7 | 49.0 | 49.0 |
| Oct 02, 2023 (Sep) | 10:00 | 49.0 | 47.7 | 47.6 |
| Sep 01, 2023 (Aug) | 10:00 | 47.6 | 47.0 | 46.4 |
| Aug 01, 2023 (Jul) | 10:00 | 46.4 | 46.8 | 46.0 |
| Jul 03, 2023 (Jun) | 10:00 | 46.0 | 47.2 | 46.9 |
| Jun 01, 2023 (May) | 10:00 | 46.9 | 47.0 | 47.1 |
| May 01, 2023 (Apr) | 10:00 | 47.1 | 46.8 | 46.3 |
| Apr 03, 2023 (Mar) | 10:00 | 46.3 | 47.5 | 47.7 |
| Mar 01, 2023 (Feb) | 11:00 | 47.7 | 48.0 | 47.4 |
| Feb 01, 2023 (Jan) | 11:00 | 47.4 | 48.0 | 48.4 |
| Jan 04, 2023 (Dec) | 11:00 | 48.4 | 48.5 | 49.0 |
| Dec 01, 2022 (Nov) | 11:00 | 49.0 | 49.8 | 50.2 |
| Nov 01, 2022 (Oct) | 10:00 | 50.2 | 50.0 | 50.9 |
| Oct 03, 2022 (Sep) | 10:00 | 50.9 | 52.2 | 52.8 |
| Sep 01, 2022 (Aug) | 10:00 | 52.8 | 52.0 | 52.8 |
| Aug 01, 2022 (Jul) | 10:00 | 52.8 | 52.0 | 53.0 |
| Jul 01, 2022 (Jun) | 10:00 | 53.0 | 54.9 | 56.1 |
| Jun 01, 2022 (May) | 10:00 | 56.1 | 54.5 | 55.4 |
| May 02, 2022 (Apr) | 10:00 | 55.4 | 57.6 | 57.1 |
| Apr 01, 2022 (Mar) | 10:00 | 57.1 | 59.0 | 58.6 |
| Mar 01, 2022 (Feb) | 11:00 | 58.6 | 58.0 | 57.6 |
| Feb 01, 2022 (Jan) | 11:00 | 57.6 | 57.5 | 58.8 |
| Jan 04, 2022 (Dec) | 11:00 | 58.7 | 60.0 | 61.1 |
| Dec 01, 2021 (Nov) | 11:00 | 61.1 | 61.0 | 60.8 |
| Nov 01, 2021 (Oct) | 10:00 | 60.8 | 60.5 | 61.1 |
| Oct 01, 2021 (Sep) | 10:00 | 61.1 | 59.6 | 59.9 |
| Sep 01, 2021 (Aug) | 10:00 | 59.9 | 58.6 | 59.5 |
| Aug 02, 2021 (Jul) | 10:00 | 59.5 | 60.9 | 60.6 |
| Jul 01, 2021 (Jun) | 10:00 | 60.6 | 61.0 | 61.2 |
| Jun 01, 2021 (May) | 10:00 | 61.2 | 60.9 | 60.7 |
| May 03, 2021 (Apr) | 10:00 | 60.7 | 65.0 | 64.7 |
| Apr 01, 2021 (Mar) | 10:00 | 64.7 | 61.3 | 60.8 |
| Mar 01, 2021 (Feb) | 11:00 | 60.8 | 58.8 | 58.7 |
| Feb 01, 2021 (Jan) | 11:00 | 58.7 | 60.0 | 60.5 |
| Jan 05, 2021 (Dec) | 11:00 | 60.7 | 56.6 | 57.5 |
| Dec 01, 2020 (Nov) | 11:00 | 57.5 | 58.0 | 59.3 |
| Nov 02, 2020 (Oct) | 11:00 | 59.3 | 55.8 | 55.4 |
| Oct 01, 2020 (Sep) | 10:00 | 55.4 | 56.4 | 56.0 |
| Sep 01, 2020 (Aug) | 10:00 | 56.0 | 54.5 | 54.2 |
| Aug 03, 2020 (Jul) | 10:00 | 54.2 | 53.6 | 52.6 |
Key Indicators Measured
- New Orders: Measures the volume of new orders received.
- Backlog of Orders: Measures the number of unfulfilled orders.
- New Export Orders: Measures the volume of new export orders.
- Imports: Measures the volume of imported goods.
- Production: Measures the production levels.
- Supplier Deliveries: Measures the speed at which suppliers deliver.
- Inventories: Measures the level of inventories held.
- Customers’ Inventories: Measures the inventory levels at customers’ locations.
- Employment: Measures employment levels in the sector.
- Prices: Measures the prices of raw materials.
Data Reporting and Analysis
For each indicator, the report provides:
- Percentage Reporting Each Response: The proportion of responses that indicate an increase, decrease, or no change.
- Net Difference: The difference between the percentage of positive responses and the percentage of negative responses.
- Diffusion Index: This index is calculated as the percentage of positive responses plus one-half of those reporting no change. This is then seasonally adjusted.
Seasonal Adjustment
The seasonal adjustment is crucial to account for repetitive intra-year variations due to weather conditions, institutional arrangements, and holidays. The U.S. Department of Commerce supplies these adjustment factors, which are reviewed and modified annually as needed.
PMI Calculation
The PMI is a composite index derived from the seasonally adjusted diffusion indices of five critical indicators, each weighted differently:
- New Orders: 30%
- Production: 25%
- Employment: 20%
- Supplier Deliveries: 15%
- Inventories: 10%
Economic Implications
Economists, investors, and policymakers closely watch the PMI because it provides early signals about the state of the manufacturing sector, which is a significant component of the overall economy.
- Higher than Expected PMI: This indicator indicates growth and expansion in the manufacturing sector, which is positive/bullish for the USD.
- Lower than Expected PMI: Indicates contraction and is negative/bearish for the USD.
Timeliness of the PMI
The PMI for a given month is released on the first business day of the following month, making it one of the earliest indicators of changes in the economy’s strength. Its main rival is the Labor Department’s payroll employment report, released on the first Friday of each month. While the employment report covers all sectors of the economy, it lacks the specific insights into sales (orders) and production that the PMI provides. Reports like the Federal Reserve’s industrial production and the Department of Commerce’s manufacturers’ orders and shipments are available approximately two and four weeks after the PMI.
Stability and Reliability
Another advantage of the PMI is its resistance to significant revisions. The only changes made to the PMI are annual updates to seasonal adjustment factors, which are usually minor. This stability is crucial for creating reliable forecasting models, as it ensures the data used at the estimation stage remains consistent over time. This contrasts with other economic time series, which can be subject to significant revisions.
Scope and Construction of the PMI
The ISM survey, conducted continuously since the end of World War II, covers more than 400 companies across twenty manufacturing industries in all fifty states. Executives are asked about various aspects of their firms’ operations, including new orders, production, employment, inventories, order backlogs, new export orders, and imports. They report whether these variables are higher, lower, or the same compared to the previous month. The percentage of executives reporting higher levels of a variable is combined with half the percentage reporting unchanged levels to create a diffusion index for each variable.
Limitations of the PMI
Despite its advantages, the PMI has some limitations. For instance, it only incorporates information available to corporate executives in the first half of the survey month. If a significant economic shock occurs in the second half of the month, it won’t be reflected in the PMI until the following month. Additionally, as a diffusion index, the PMI indicates that more executives report improving conditions rather than deteriorating ones. It doesn’t measure the intensity of these changes or weight responses by firm size, potentially missing significant shifts in the economy concentrated in a few large firms.
Conclusion
The ISM Manufacturing PMI is a comprehensive and influential report that reflects the manufacturing sector’s economic health. Its systematic approach to data collection and analysis and seasonal adjustments provide a reliable measure of manufacturing activity, significantly influencing economic policy and financial markets.
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