Detailed Report

<%@ Language=VBScript %> <% Response.Write(cszCSS) %> Detailed Report

Econoday | Resource Center

Definition
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states. The survey queries purchasing managers about the general direction of production, orders, inventories, employment, vendor deliveries and prices. The questions are qualitative rather than quantitative; that is, they ask about the general direction, rather than the specific level, of business. Each question is transformed into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses. Five components are weighted to form the composite.

Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and not subject to revision.

Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.

The level of the ISM manufacturing composite index suggests the momentum in manufacturing. Historically, readings of 50% or above are associated with an expanding manufacturing sector and a healthy economy. Readings of 42.7% or above represent a contracting manufacturing sector and a stagnant, albeit modestly growing economy. Readings below 42.7% are typically associated with contraction in both the manufacturing sector and overall activity.

In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.

Vendor (supplier) deliveries are a component of The Conference Board's index of leading indicators. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.

The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.

Frequency
Monthly.

Source
National Association of Purchasing Management

Availability
Usually the first business day of the month.

Coverarge
Data are for the previous month. (Data for June are released in July.)

Revisions
Monthly, none. Annually, new seasonal adjustment factors are introduced. The magnitude of the revision is typically minor.

Why Investors Care • Brief Definitions • Expanded Definitions