Institute for Supply Management (ISM) Manufacturing Survey

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Institute for Supply Management (ISM)
Manufacturing Survey

• Published by Institute for Supply Management
• Frequency Monthly
• Period Covered Prior Month
• Market Significance Very High
• Web Site http//www.ism.ws
• Presented by Jesse Garate
• Victor M Lorenzo

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What is it?

• Manufacturing survey
• Tempe-Arizona-based group that represents
  corporate purchasing managers around the country
• Two major surveys Comments from Manufacturing
  and Non-Manufacturing sectors
• Purchasing managers are asked to assess if
  activity is rising, falling or unchanged
• Questionnaires are sent out every month to about
  400 companies, representing 20 different
  industries
• Survey results come out on the first business day
  of every month

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What is in the report?

• The report is broken down in the following
  fields
• New Orders- New orders by purchasing agents
• Production- Manufacturing output
• Employment- Hiring in the company
• Supplier deliveries- Speed of the delivery from
  suppliers
• Inventories- The rate of liquidating
  manufacturers inventories
• Customers inventories- Agents guess the
  inventory levels of their customers
• Commodity prices- Prices paid by the
  manufacturing for suppliers
• Backlog of order- Orders not yet filled
• New Export orders- Rate of new orders from other
  countries
• Imports- Material that agents purchased from
  other countries

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What is in the report?

• The PMI is a composite index based on the
  seasonally adjusted diffusion indices for five of
  the indicators with varying weights
• New Orders 30
• Production 25
• Employment 20
• Supplier Deliveries 15
• Inventories 10
• PMI is calculated as a diffusion index, which
  shows changes in activity from month to month
  showing the prevailing direction of change and
  the scope of change, but does not show actual
  levels of production

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How is it computed?

• ISM takes the ? of those who reported higher
  activity and adds 50 ? of those who reported no
  changes
• Example 50 reported no change and 29.7
  reported higher activity.
• 1)We take 50 of those who reported no change
• .50 x .50 25
• 2) We add 25 to those who reported higher
  activity
• 25 29.7 54.7

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Why is it important?

• Considered as the most reliable short-term
  economic barometer
• Overall PMI gauges turning points in the business
  cycles and closely linked to movement in the GDP
• ISM Index is a leading indicator of economic
  activity
• Since it covers 20 different industries, it gives
  clues as to the greatest sources of strength and
  weaknesses in the economy
• Which sectors are growing?
• Which are hiring?
• Which are feeling the inflation pinch?
• Timeliness Results are in first business day of
  every month

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Keys to interpreting the data

• The PMI benchmark that is used to measure
  economic activity is 50
• Index gt 60 (sustained basis 3 to 6 months) Both
  manufacturing and the economy showing vigorous
  growth and low unemployment could prompt the FED
  to increase rates.
• Index gt 50 but lt 60 Both manufacturing and the
  economy are expanding
• Index 50 No change In activity. It is believed
  to be consistent with real GDP growth of about
  2.5.
• Index lt 50 but gt 43 Manufacturing activity is
  contracting, yet the overall economy may
  still be growing
• Index lt 43 (sustained basis 3 to 6 months) Mfg
  and economy likely to be in recession. Could
  prompt the FED to lower rates.

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Historical Data 1999-2002
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Historical Data 2003-2007
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PMI vs. GDP
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Latest Release
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Data Analysis

• Based on the information from this indicator, we
  conclude
• -The economy is expanding slightly faster
• -We foresee the FED to either stay at current
  interest rate of 5.25 or slightly increase it