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What is the ISM PMI?
The Institute for Supply Management's Purchasing Managers' Index (PMI) is a monthly survey of purchasing managers across US manufacturing and services firms. A reading above 50 signals expansion; below 50 signals contraction. The headline matters less than the New Orders and Employment subindexes, which lead the broader economy by one to two quarters. ISM Manufacturing PMI is one of the most reliable leading indicators of the US business cycle.
- >50 = expansion - Below 50 signals contraction.
- New Orders - Leading sub-index - usually moves first.
- Prices Paid - Inflation pressure indicator.
- Manufacturing + Services - Manufacturing leads, services confirms.
How PMI is calculated
ISM surveys ~400 purchasing managers and asks whether each metric is up, down, or unchanged vs prior month. The diffusion index = % up + 0.5 × % unchanged. So 50 = no change, >50 = expansion, <50 = contraction.
Sub-indexes that matter
- New Orders - leads the cycle, watch first
- Production - current activity
- Employment - labor demand confirmation
- Supplier Deliveries - supply-chain stress
- Prices Paid - input-cost inflation
- Backlog of Orders - pipeline
Manufacturing vs Services
Manufacturing PMI is the more reliable leading indicator (releases first, ~1st of the month). Services PMI confirms (~3rd of the month). Both below 50 = recession risk elevated.
Historical context
ISM Manufacturing below 45 has historically been associated with recession. New Orders sub-index below 45 is a stronger lead.