ISM Non-Manufacturing PMI

ISM Non-Manufacturing PMI reflects business conditions and activity in the US service sector in the given month. The Institute of Supply Management (ISM) is a not-for-profit supply management organization in the United States, which has over 40,000 members.

The index is calculated based on a survey of representatives of 375 companies from 17 industries of the US non-manufacturing sector. Unlike Markit, ISM considers not only private companies but is based on the common NAICS (North American Industrial Classification System) list. Respondents describe the following aspects of their economic activity:

• Business activity: rate and direction of changes in the business activity level
• New orders received from customers
• Employment growth or decrease
• Supplies
• Inventories: whether inventories have increased or decreased
• Prices: whether the company is paying for goods and services more or less
• Backlog of orders: increase or decrease
• New export orders
• Imports: amount of imported goods and services
• Inventory sentiment: whether their inventories grow fast or slowly

The questionnaire features relative estimates: whether the situation is better, worse or has not changed. Responses are estimated taking into account weights of respondent companies. The values are seasonally adjusted. The resulting non-manufacturing PMI is a composite of four diffuse indices with different weights (Business Activity, New Orders, Employment and Supplies).

Readings above 50 point to an increased activity in the service sector. Index below 50 is an indication of contraction in economic conditions. The further the value moves from the mark of 50, the greater the rate of situation change.

PMI is an important indicator of economic health. The service sector contributes much to the country’s GDP, therefore PMI is considered a leading indicator of a beginning recession or growth. Purchasing managers are among the first to know when the market conditions change, since they work in the short term and can evaluate a trend towards changing economic conditions. The index is released earlier than GDP and reports from the Bureau of Labor Statistics, therefore it is a leading indicator.

Growth of the non-manufacturing PMI is usually seen as positive for the US dollar.