ISM Manufacturing United States

ISM Manufacturing United States
ISM Manufacuring assesses the state of US industry by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Though manufacturing accounts for a relatively small portion of GDP, fluctuations in manufacturing tend to bear the most responsibility for changes in GDP. Consequently, developments in manufacturing often front run trends in the overall economy, making the ISM Manufacturing figure a leading indicator of economic turnarounds. A pickup in demand for manufactured products after a period of recession, reflected by a higher ISM figure, strongly suggests a reversal upward. Conversely a slowdown in manufacturing orders and production during a boom suggests a slowing of the economy.

The ISM Manufacturing Survey is valued for its timeliness, and indeed, during waning boom cycles analyst point out that ISM tends to be one of the biggest market moving economic releases. The reasoning lies within the ISM Prices Paid and Employment sub omponents. These components reflect sentiment towards inflation and labor conditions – two of the market most significant health indicators. Given that the ISM timeliness, the information gleaned from such components precedes other market data (like Non-Farm Payrolls or CPI), making the ISM a significant indicator.

The headline figure is expressed as a diffusion index based on survey responses. For each category (production, new orders etc.), the index is calculated by adding the percentage of executive responding higher with half the percentage of no change responses, and subtracting the percentage of lower responses. The ISM manufacturing indicator is the aggregate of the results for all categories.

Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

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