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ISM Report On Business® Frequently Asked Questions

The Institute for Supply Management™ (ISM) is home to the Manufacturing and Non-Manufacturing ISM Report On Business®. These reports are considered by many to be vital, leading economic indicators, and are followed by economist, organizations, and media outlets around the world. Below are the most frequently asked questions regarding the Report On Business®. For additional information, contact Kristina Cahill at 800/888-6276 or 480/752-6276, extension 3015, or via email at Kristina Cahill.


Q:  Who is ISM?

A:  ISM is the Institute for Supply Management™. Until January 2, 2002, the name of the association was the National Association of Purchasing Management (NAPM). ISM changed its name to reposition itself in the broader context of supply management. The content of the Report On Business®, however, has not changed in any way. The only change is that the report is now called the ISM Report On Business®.


Q:  What types of economic reports does ISM produce?

A:  ISM Manufacturing Report On Business®
— Issued on the first business day of each month, the ISM Manufacturing Report On Business® is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by top government agencies and economic and business leaders for its timely, accurate information regarding the manufacturing sector of the economy.

ISM Non-Manufacturing Report On Business®
— The ISM Non-Manufacturing Report On Business® provides overall insight to the services area of the economy that represents over 80 percent of Gross Domestic Product (GDP). It has been in existence since June 1998, and is released the third business day of the month.

ISM Semiannual Report On Business® (Released in May and December)
— The ISM Semiannual Report provides insight into both the manufacturing and non-manufacturing sectors of the U.S. economy. The data in the Report compares information from the previous report versus what current conditions are. This Report also offers a forecast for the next six months.


Q:  How is the data gathered?

A:  Members of the ISM Business Survey Committee receive a questionnaire each month that asks them to identify month-over-month changes (if any) for each index. The Manufacturing and Non-Manufacturing ISM Report On Business® surveys are sent out to Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM then compiles the reports for release on the first business day of the following month.


Q:  What does "PMI" stand for?

A:  The PMI is a composite index used only in the Manufacturing Report On Business®. Prior to September 1, 2001, the acronym (PMI) stood for Purchasing Managers' Index. ISM now uses only the acronym, PMI, due to ISM's name change and concurrent move to broaden our reach into strategic supply management beyond the purchasing function.


Q:  How is the PMI calculated, and what does it mean?

A:  The PMI is a composite index based on the diffusion indexes for the following five indicators at equal weights:

New Orders (seasonally adjusted) 20%
Production (seasonally adjusted) 20%
Employment (seasonally adjusted) 20%
Supplier Deliveries (seasonally adjusted) 20%
Inventories 20%

A PMI index over 50 represents growth or expansion within the manufacturing sector of the economy compared with the prior month. A reading under 50 represents contraction, and a reading at 50 indicates an equal balance between manufacturers reporting advances and declines in their business.


Q:  What is a diffusion index?

A:  A diffusion index measures the degree to which a change in something is dispersed, spread out, or "diffused" in a particular group. If all members of a group of people (sample population) are asked if something has changed and in which direction, they will answer in one of three ways: it has not changed, it has increased, or it has decreased. This is the nature of the ROB questions.

All the ISM indexes are "diffusion indexes" and are indicators of month-to-month change. The percent response to the "Better," "Same," or "Worse" question is difficult to compare to prior periods; therefore, we diffuse the percentages for this purpose. A diffusion index indicates the degree to which the indicated change is dispersed or diffused throughout the sample population. Respondents to ISM surveys indicate each month whether particular activities (e.g., new orders) for their organizations have increased, decreased, or remained unchanged from the previous month. The ISM indexes are calculated by taking the percentage of respondents that report that the activity has increased ("Better") and adding it to one-half of the percentage that report the activity has not changed ("Same") and adding the two percentages. Using half of the "Same" percentage effectively measures the bias toward a positive (above 50 percent) or negative index. As an example of calculating a diffusion index, if the response is 20 percent "Better," 70 percent "Same," and 10 percent "Worse," the Diffusion Index would be 55 percent (20% + [0.50 x 70%]). A reading of 50 percent indicates "no change" from the previous month.

Economists and statisticians have determined that the farther the index is away from the amount that would indicate "no change" (50 percent), the rate of change is greater. Therefore, an index of 60% indicates a faster rate of increase than an index of 55% (increased activity is becoming more dispersed), and an index of 35% indicates a faster rate of decrease than an index of 40% (decreased activity is becoming more dispersed). A value of 100 indicates all respondents are reporting increased activity while 0 indicates that all respondents report decreased activity.


Q:  Which index in the Non-Manufacturing ISM Report On Business® is a composite index or equivalent to the PMI?

A:  Beginning in January 2008, ISM began calculating a composite index for the Non-Manufacturing sector. The Non-Manufacturing Index, NMI, is a composite index based on the diffusion indexes for the following four indicators at equal weights:

Business Activity (seasonally adjusted) 25%
New Orders (seasonally adjusted) 25%
Employment (seasonally adjusted) 25%
Supplier Deliveries 25%

A NMI index over 50 represents growth or expansion within the non-manufacturing sector of the economy compared with the prior month. A reading under 50 represents contraction, and a reading at 50 indicates an equal balance between non-manufacturers reporting advances and declines in their business.


Q:  What are the definitions of the indexes included in the Manufacturing and Non-Manufacturing Report On Business®?

A:  Manufacturing:

  • New Orders: reflects the levels of new orders from customers.
  • Production: measures the rate and direction of change, if any, in the level of production.
  • Employment: reports the rate of increase or decrease in the level of employment.
  • Supplier Deliveries: reveals if deliveries from suppliers are faster or slower.
  • Inventories: reflects the increases and/or decreases in inventory levels.
  • Customer Inventories: rates the level of inventories the organization's customers have.
  • Prices: reports whether organizations are paying more or less for product(s)/service(s).
  • Backlog of Orders: measures the amount of backlog of orders, whether growing or declining.
  • New Export Orders: reports on the level of orders, requests for services, and other activities to be provided outside of the United States.
  • Imports: measures the rate of change in materials imported.

Non-Manufacturing:

  • Business Activity: measures the rate and direction of change, if any, in the level of business activity.
  • New Orders: reflects the levels of new orders from customers.
  • Employment: reports the rate of increase or decrease in the level of employment.
  • Supplier Deliveries: reveals if deliveries from suppliers are faster or slower.
  • Inventories: reflects the increases and decreases in inventory levels.
  • Inventory Sentiment: measures the rate of inventories based on a feeling of "too high" and "too low."
  • Prices: reports whether organizations are paying more or less for product(s)/service(s).
  • Backlog of Orders: measures the amount of backlog of orders, whether growing or declining.
  • New Export Orders: reports on the level of orders, requests for services, and other activities to be provided outside of the United States.
  • Imports: measures the rate of change in materials imported.

Q:  Do either of the ISM Reports break down the information provided by specific industry or commodity?

A:  ISM does not track the performance of any particular industry or commodity. The Reports contain all available data for any given month, and the index data contained in the Reports is aggregated for all industries. Each month, the industries reporting the most significant rate changes are listed in the Report. In addition, the Reports list those commodities that are up or down in price, and/or are in short supply.


Q:  Where can I find historical information?

A:  The ISM Web site, www.ism.ws, has extensive historical information for the PMI and all manufacturing and non-manufacturing indexes.


Q:  In what order are the industries ranked in the Report listings of industries that are growing and contracting on any given month?

A:  The industries reporting growth, as indicated in the Manufacturing and Non-Manufacturing ISM Report On Business® monthly reports, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.


Q:  When are the indexes seasonally adjusted? Which indexes are seasonally adjusted?

A:  Seasonal adjustments are made each year in the January reports. The seasonal adjustments are developed by the U.S. Department of Commerce and provided to ISM. As of January 2012, the indexes that are seasonally adjusted are:

Manufacturing:

New Orders
Production
Employment
Supplier Deliveries

Non-Manufacturing:

Business Activity
New Orders
Employment
Prices


Q:  Are there regional Reports On Business?

A:  Yes, but these are not produced by ISM. Regional reports are developed by ISM affiliates, and usually cover the market area for the affiliate membership. Some cover major city areas, while others are statewide reports. A list of regional reports is posted on http://www.ism.ws/ISMReport/content.cfm?ItemNumber=13132&navItemNumber=12950.


Q:  Are there international reports equivalent to the ISM Report On Business®?

A:  There are countries abroad that do offer information similar to that found in the Manufacturing Report On Business®. For example, the Danish Purchasing and Logistic Forum releases a PMI and index information at www.dilf.dk, and the Chartered Institute of Purchasing and Supply releases a PMI and similar index information for the UK on a monthly basis. ISM does not maintain a comprehensive list of international reports.


Q:  Is the ISM Report On Business® a month-to-month indicator, or month-to-year?

A:  The Report On Business® is a month-to-month indicator. However, ISM produces a Semiannual Forecast in December and May that reports on business conditions, trends, and expectations for the upcoming year as well as for the balance of the current year.


Q:  When is the Report On Business® released, and where are copies of the release available?

A:  The Manufacturing Report On Business® is released on the first business day of every month. The Non-Manufacturing Report On Business® is released the third business day of every month. Both are released via Business Wire and posted on ISM's Home Page at www.ism.ws



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