ISM PMI: Reading the Business Cycle Through Purchasing Managers
How to interpret Manufacturing & Services PMIs, New Orders-to-Inventory spreads, and Prices Paid inflation indicators.
1. What Is the ISM Purchasing Managers' Index (PMI)?
Published monthly by the Institute for Supply Management, the ISM Manufacturing PMI and ISM Services PMI are survey-based diffusion indices that provide the earliest read on economic activity in the United States — released weeks ahead of official government GDP data.
A reading above 50.0 signals expansion relative to the prior month, while a reading below 50.0 indicates contraction.
2. Key Sub-Indices Monitored by Institutional Desks
- New Orders: The purest leading component of the report. A New Orders index rising above 55 indicates accelerating corporate demand; falling below 45 signals impending manufacturing slowdown.
- Prices Paid: A sensitive leading indicator for pipeline producer prices and headline PCE vs. CPI Inflation.
- Supplier Deliveries: Measures supply chain bottlenecks. Slower deliveries (index > 50) reflect tight capacity and strong demand.
- Employment: Tracks hiring and workforce expansion across manufacturing and service organizations.
3. The New Orders-to-Inventory Ratio
Quantitative strategists calculate the spread between the New Orders index and the Inventories index:
When this spread is positive and expanding, businesses are under-stocked relative to incoming demand, triggering factory production ramps and positive earnings revisions across cyclical equities.