Overview of the Manufacturing ISM Report On Business®

"I find the surveys conducted by the purchasing managers (ISM) to be an excellent supplement to the data supplied by various departments and agencies of government," said Alan Greenspan, Ph.D., chairman of the Federal Reserve Board.

According to Joseph E. Stiglitz, former chairman of President Clinton's Council of Economic Advisors, "The Manufacturing ISM 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 Manufacturing ISM 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 Manufacturing ISM Report On Business® and the PMI have earned immense recognition over the years from the economists and forecasters in government and business because of the report's early and accurate reflection with the manufacturing sector of the economy and the PMI's close correlation with the entire economy.

The Manufacturing ISM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in more than 400 industrial companies. Membership of the ISM Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to Gross Domestic Product (GDP). Twenty industries in 50 states are represented on the committee.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better, and slower for Supplier Deliveries) and the negative economic direction (lower, worse, and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed.

The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive). The resulting single index number is then seasonally adjusted to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to nonmoveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50% indicates that the manufacturing economy is generally expanding; below 50%, that it is generally declining. A PMI over 42.7%, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP) is generally expanding, below 42.7%, that it is generally declining. The distance from 50% or 42.7% is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analyses.

Responses to Buying Policy reflect the percent reporting the current month's leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials, Capital Expenditures, and Maintenance, Repair, and Operating (MRO) Supplies, expressed as hand-to-mouth (5 days), 30 days, 60 days, 90 days, 6 months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing ISM Report On Business® is published monthly by the Institute for Supply Management™, which is the largest purchasing and supply management research and education organization in the United States. ISM has more than 40,000 members in the United States and Puerto Rico. The report has been issued by the association since 1931, except during World War II.

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