ISM Purchasing Managers' Index (PMI)

What is the ISM Purchasing Managers' Index?

The ISM Purchasing Managers' Index (PMI) is based on a monthly survey of purchasing and supply executives at manufacturing companies across the United States, drawn from a broad range of industries. It is compiled by the Institute for Supply Management (ISM), a US professional association. The survey is designed to shed light on economic developments in the coming months, as purchasing managers are among the first to notice changes in demand.

How the index works

Respondents report whether factors such as new orders, production, employment, supplier delivery times, inventories, imports and prices have increased, decreased or stayed the same compared with the previous month. Each factor becomes a diffusion index: the percentage of positive answers plus half of the "unchanged" answers. The headline PMI is the equally weighted average of five components – new orders, production, employment, supplier deliveries and inventories.

A value of 50 is regarded as neutral. A reading above 50 indicates that manufacturing is expanding, which points to economic growth, while a reading below 50 signals declining industrial activity. A rise from 48 to 52, for example, means a switch from contraction to expansion.

Why it matters for traders

The manufacturing PMI is published on the first business day of each month, covering the previous month, which makes it a timely indicator; a separate ISM services index follows on the third business day. Surprises can move the US dollar, Treasury yields and US stock index CFDs, and the prices component is watched as an early signal of inflation. Like the German ifo Business Climate Index, the PMI helps traders anticipate official GDP data.