ISM Manufacturing Index

The ISM Manufacturing Index, also called the Purchasing Manager’s Index, or PMI, is a monthly calculation that tells us essentially how the U.S. manufacturing industry is doing. Beyond that, though, this handy little index can give us an inkling about how the American economy is doing as a whole; an index below 50 means we might be in or heading toward a recession, while an index above 50 means the opposite.

Let’s delve, shall we?

Every month, top-level execs from over 400 manufacturing companies in the U.S. are asked to provide information to the Institute of Supply Management (ISM) on what their company has been up to for the past month. But this isn’t like, “Hey, top-level exec, what have you guys been up to for the past month?” It’s more like, “Hey, top-level exec, how many new orders did you get last month? How many of them are imports? How many are exports? How’s your inventory? What’s your backlog?” and stuff like that.

Once all the raw data is gathered from all those organizations, the smart cookies over at ISM tabulate it, do a bunch of calculations with it, adjust it for any seasonal factors if needed, and then release it to the public. Investors love the PMI, because it’s their first monthly look at how the manufacturing sector is doing; if it’s doing well (i.e., it’s higher than it was the month before), investor confidence tends to go up, and if it’s not, well…it doesn’t.