The Institute for Supply Management™ ISM Manufacturing Report On Business® is considered by many economists to be the most reliable near-term economic barometer available. Except for a four-year interruption during World War II, the Report has been published monthly since 1931 for the guidance of supply management professionals, economists, analysts, and government and business leaders.
Alan Greenspan, Ph.D., former chairman of the Federal Reserve Board, has said of the ISM Manufacturing Report On Business®, "I find the surveys conducted by the purchasing and supply managers to be an excellent supplement to the data supplied by various departments and agencies of government."
According to Joseph E. Stiglitz, former chairman of President Clinton's Council of Economic Advisors, "The ISM Manufacturing Report On Business® has one of the shortest reporting lags of any macro-economic series and gives an important early look at the economy. It also measures some concepts (such as lead times and delivery lags) that can be found nowhere else. It makes an important contribution to the American statistical system and to economic policy."
Michael J. Boskin, Ph.D., professor of economics, Hoover Institute senior fellow at Stanford University; and former chairman of President Bush's Council of Economic Advisors, said "The ISM Manufacturing Report On Business® is extremely useful. The PMI, the Report's composite index, gives the earliest indication each month of the health of the manufacturing sector. It is an essential component for assessing the state of the economy." Boskin also said the President's Council of Economic Advisors closely monitored the ISM indexes, especially the New Export Order's Index.
The reason the ISM Manufacturing Report On Business® is so highly respected is that it is based on hard data rather than on conjecture. The Institute's Business Survey Committee, composed of more than 300 purchasing and supply executives from across the country, provide the data. Members of the committee respond anonymously and confidentially to a monthly questionnaire designed to elicit fact, not opinion, about changes in production, new orders, new export orders, imports, employment, inventories, prices, leadtimes, and the timeliness of supplier deliveries in their companies comparing the current month to the previous month. The questionnaire also solicits data on commodities, which are up or down in price and in short supply, and asks for general remarks on business conditions. The responses of the committee members mirror the economic activities of the manufacturing sector, nationally, ensuring a report that accurately represents current business conditions.
In February 1982, the PMI was developed by the U.S. Department of Commerce (DOC) and ISM. The index, based on analytical work by the DOC, adjusts five components of the Institute's monthly survey — new orders, production, employment, supplier deliveries and inventories — for normal seasonal variations, applies equal weights to each and then calculates them into a single monthly index number.
An update of research originally done by Theodore S. Torda, the late economist for the DOC, shows a close parallel between growth in real Gross Domestic Product (GDP) and the PMI. The index can explain about 60 percent of the annual variation in GDP, with a margin of error that averaged ± .48 percent during the last ten years. George McKittrick, an economist at the DOC, said "Not only does the PMI track well with the overall economy, but the indication provided by ISM data about how widespread changes are, complements analogous government series that show size and direction of change."
In January 1989, the Supplier Deliveries Index from the Report became a standard element of the DOC's Bureau of Economic Analysis Index of Leading Economic Indicators. The data was incorporated into the index from June 1976 forward. In January 1996, The Conference Board began compiling this index.
Covering the Non-Manufacturing sector, ISM debuted its newest economic report in June of 1998. The Non-Manufacturing ISM Report On Business® is released on the third business day of each month, and is based on data compiled from monthly surveys sent to more than 375 purchasing executives working in the non-manufacturing industries across the country. Each month, these survey responses reflect change, if any, in the current month's report compared to the previous month. The report covers Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries.
Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries.
The ISM Manufacturing and Non-Manufacturing Report On Business® is certainly not the only barometers to be consulted by those who are interested in tracking the economy; they should be used in conjunction with other measurements. However, they are the first reports available the first and third business day of each month, which has been consistently accurate in indicating the direction of the overall economy in addition to the manufacturing and non-manufacturing sectors.
ISM's business survey committee also gathers members' views of the general business outlook six to eight months ahead in ISM's Semiannual Economic Forecast.
Institute for Supply Management™ (ISM) is the first supply management institute in the world. Founded in 1915, ISM exists to lead and serve the supply management profession and is a highly influential and respected association in the global marketplace. By executing and extending its mission through education, research, standards of excellence and information dissemination — including the renowned monthly ISM Report On Business® — ISM maintains a strong global influence among individuals and organizations. ISM is a not-for-profit educational association that serves professionals with an interest in supply management who live and work in more than 80 countries. ISM offers the Certified Professional in Supply Management® (CPSM®) and Certified Professional in Supplier Diversity™ (CPSD™) qualifications, and is a member of the International Federation of Purchasing and Supply Management (IFPSM).