All indices given below are for United States and are recorded on a monthly basis through survey of supply chain management professionals responding to a business survey conducted by and available from Institute of Supply Management (ISM). The respondents of this business survey are from a range of industry categories and the data are weighted based on each industry’s contribution to Gross Domestic Product (GDP).

- Manufacturing PMI is a composite index based on the diffusion indexes of five indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories. It is seasonally adjusted.

A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.

Manufacturing PMI is one of the two of the most reliable economic indicators available, providing guidance in relation to the direction of the overall economy. Services PMI is another such indicator.

 
- Manufacturing new orders is a diffusion index and is seasonally adjusted. A new orders Index above 52.9 percent, over time, is generally consistent with an increase in the new manufacturing orders. An index above 52.4 percent, over time, is generally consistent with an increase in production.

- Manufacturing employment index is a diffusion index and is seasonally adjusted. An employment index above 50.5 percent, over time, is generally consistent with an increase in employment.

- Manufacturing supplier deliveries index is a diffusion index and is seasonally adjusted. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

- Manufacturing inventories index, as of January 2012, is no longer seasonally adjusted. An inventories index greater than 44.4 percent, over time, is generally consistent with expansion.

- Manufacturing customers' inventories index: A lower customer's inventories index is positive for future production growth.  

- Manufacturing prices index, as of January 2003, is no longer seasonally adjusted. A prices index above 52.6 percent, over time, is generally consistent with an increase in prices.

- Manufacturing backlog of orders index: A lower backlog of orders index is positive for future production growth whereas a higher index may indicate supply side constraints or a high demand.

- Manufacturing new export orders index, as of January 2007, is no longer seasonally adjusted. Stronger US dollar normally constrains new export order activity which is not good for the economy.

- Manufacturing imports index, as of January 2006, is no longer seasonally adjusted. Slowing imports may indicate either slowness in economy or higher inventories or slowing demand and vice-versa.

- Manufacturing capital expenditures lead time indicator tells us the lead time in days for capital expenditure. A higher capital expenditure lead time (average number of days) may indicate slowing economy and a lower reading may indicate expansion in the future.

- Average lead time for production materials represent the average time in number of days to procure production materials. 

- Average lead time for Maintenance, Repair and Operating (MRO) Supplies represent the average time in number of days for general maintenance, repair or procure operating supplies to continue uninterrupted manufacturing.

- Services PMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change.

A reading above 50 percent indicates the services sector economy is generally expanding. A reading below 50 percent indicates it is generally contracting.

Services PMI is on of the two of the most reliable economic indicators available, providing guidance in relation to the direction of the overall economy. Manufacturing PMI is another such indicator.

- Services PMI business activity index is seasonally adjusted. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining.

- Services PMI new orders index is seasonally adjusted. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining.

- Services PMI employment index is seasonally adjusted.

- Services PMI supplier deliveries index: A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries.

- Services PMI inventories Index: A reading above 50 percent indicates inventories contracting, while a reading below 50 percent indicates increasing inventories.

- Services PMI prices index represents the prices paid by services organizations for materials and services. It is seasonally adjusted.

- Services PMI backlog of orders index represents orders and requests for services to be provided within U.S. A lower backlog of orders index is positive for future growth whereas a higher index may indicate high demand.

- Services PMI new export orders index represents orders and requests for services to be provided outside of the U.S.

- Services PMI imports index: Slowing imports may indicate either slowness in the local economy or slowing demand.

- Services PMI inventory sentiment index: Levels below 50 indicates that respondents feel their inventories are too low when correlated to business activity levels.

Key Takeaways

Manufacturing PMI and Services PMI are one of the many leading indicators that helps predict the GDP and the overall health of the economy. Using the last 70 years’ worth of ISM PMI data, we can create a key that allows us to predict GDP based on the ISM’s trend line:

ISM above 50 and increasing: positive outlook
ISM peaks above 50: neutral/negative outlook
ISM above 50 and decreasing: negative outlook
ISM below 50 and decreasing: negative outlook
ISM troughs below 50: neutral/positive outlook
ISM below 50 and increasing: positive outlook

The rate of increase or decrease should also be paid attention to as it provides guidance on the strength of the directional trend.