FOR RELEASE: January 31, 2012

(Tempe, Arizona) — The U.S. Department of Commerce recently completed its annual adjustment to the seasonal factors used in the monthly Institute for Supply Management™ (ISM) Manufacturing Report On Business^® and the monthly Institute for Supply Management™ (ISM) Non-Manufacturing Report On Business^®. Economists and managers who track these indexes will note these changes are effective with the January 2012 ISM Manufacturing Report On Business^®, which is scheduled to be released on February 1, 2012, and the January 2012 ISM Non-Manufacturing Report On Business^®, which will be released on February 3, 2012.

Seasonal adjustment factors are used to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-movable holidays. It is standard practice to project the seasonal adjustment factors used to calculate the indexes one year ahead (2012).

This year's seasonal factor revisions include greater attention to two areas: series with marginal seasonality and with improved outlier detection. Due to this focus, the Department of Commerce recommended that ISM no longer seasonally adjust the ISM Manufacturing Inventories Index. Additionally, they recommended making revisions to all seasonally adjusted data for a longer time period than what ISM has typically done in the past.

In response to concerns that the unusually large declines in autumn 2008 associated with the recent recession that may not have been adequately handled with default settings, this year the Department of Commerce used lower thresholds (critical values) for detecting outliers. As a result of moving averages, these changes in outlier detection affected seasonal factors both before and after 2008; therefore, ISM is making revisions to seasonally adjusted data for the past seven years rather than the customary four-year period.

The X12-ARIMA program was used to develop the revisions to the Manufacturing and Non-Manufacturing indexes for 2005 through 2011, as well as the 2012 projected seasonal factors. The 2012 seasonal factors will be recomputed when the actual data are known in early 2013. Projected seasonal factors for 2012 and revised seasonally adjusted indexes are shown below, followed by charts tracking both the former and the revised PMI for Manufacturing and Business Activity Index for Non-Manufacturing.

2012 Seasonal Adjustment Factors for ISM Manufacturing Indexes

(Prepared by G. McKittrick, Economist, U.S. Department of Commerce, 202/482-2343)

To compute the PMI:

1)  Calculate the unadjusted diffusion index for New Orders, Production, Employment and Inventories to two decimal places (percent higher or up plus one half of the percent same or unchanged). For Supplier Deliveries, it will be percent slower plus one half of the percent same or unchanged.

2)  Divide each unadjusted diffusion index by its seasonal factor (round to one decimal place). Note: As of January 2012, the ISM Manufacturing Inventories Index is no longer seasonally adjusted.

3)  Add all five index numbers together and divide by five.

To compute other indexes, follow steps #1 and #2 above for each indicator.

2012 Seasonal Adjustment Factors for ISM Non-Manufacturing Indexes

To compute the NMI:

1)  Calculate the unadjusted diffusion index for Business Activity, New Orders and Employment to two decimal places (percent higher or up plus one half of the percent same or unchanged). For Supplier Deliveries, it will be percent slower plus one half of the percent same or unchanged.

2)  Divide each unadjusted diffusion index by its seasonal factor (round to one decimal place).

3)  Add all four index numbers together and divide by four.

To compute other indexes, follow steps #1 and #2 above for each indicator.

Revised Manufacturing Seasonally Adjusted Indexes 2005-2011

*The ISM Manufacturing Inventories Index is no longer seasonally adjusted as of January 2012.

The revised breakeven point for the overall economy is a PMI of 42.6 percent. A PMI over 42.6 percent indicates an expanding overall economy. A PMI below 42.6 percent indicates the overall economy is declining.

Revised Non-Manufacturing Seasonally Adjusted Indexes 2005-2011

Beginning in January 2008, ISM began calculating a composite index for the Non-Manufacturing sector (NMI).

Charts Illustrating Former and Revised Indexes

The ISM 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. The Manufacturing and Non-Manufacturing ISM Reports On Business^® are published monthly by the Institute for Supply Management™. Each month, both reports are compiled from responses to questions asked of purchasing and supply executives across the country and reflects change, if any, in the current month compared to previous months. As the oldest and largest supply management institute in the world, the mission of the Institute for Supply Management™ (ISM) is to lead supply management. By executing and extending its mission through education, research, standards of excellence, influence building and information dissemination — including the renowned monthly ISM Report On Business^® report — ISM continues to extend the global impact of supply management. ISM's membership base includes more than 40,000 supply management professionals in 75 countries. Supply management professionals are responsible for trillions of dollars in the purchases of products and services annually. ISM is a member of the International Federation of Purchasing and Supply Management (IFPSM).

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