ISM manufacturing index

A survey published by the Institute for Supply Management, an association of purchasing professionals, and one of the earliest readings available on the state of American manufacturing. Purchasing managers at several hundred firms report whether each of a set of conditions was better, the same or worse than the previous month. The answers are compiled into sub-indices covering new orders, production, employment, supplier deliveries and inventories, and the headline index is built from those five.

Each sub-index is a diffusion index: the percentage of respondents reporting an improvement plus half the percentage reporting no change, seasonally adjusted. That construction puts the neutral point at fifty, so the level answers a question about breadth. Above fifty, more firms saw conditions improve than deteriorate. The survey covers a calendar month and is released on the first business day of the following one, which is why it arrives before the official statistics for the same period.

Breadth is not size, and reading the level as a growth rate is the standard mistake. A reading barely above the neutral point says an improvement was widespread, not that output rose by much, and a reading in the forties says contraction was widespread rather than deep. Three further distinctions matter: manufacturing is a small share of the American economy and the separate services survey covers far more of it, the two regularly point in different directions, and a differently constructed manufacturing survey published by another provider covers a different panel and does not have to agree.