ISM Manufacturing PMI Flashcards
How is the ISM PMI calculated
What does that mean
The PMI is calculated as a so-called diffusion index, which by definition measures the degree to which a change in something is dispersed or “diffused” in a particular group.
50% saw activity pick up
25% saw no change in activity
what is the index number?
62.5
What do readings tell us?
Above 50?
Below 50 but above 41.1?
Below 41.1 on sustained basis?
- Above 50: Both manufacturing and the economy are expanding.
- Below 50 but above 41.1: Manufacturing activity is contracting, yet the overall economy may still be growing.
- Below 41.1 on a sustained basis: Both manufacturing and the economy are likely to be in recession. The prospect increases that Fed officials will lower rates to spur faster economic growth.
A manufacturing index reading of 50 is historically associated with what level of GDP growth on an annual basis?
2.5%
An additional point above 50 is typically associated with what additional growth in gdp?
0.3%
What does a level significantly above 50 in the suppliers delivery index imply about the state of the economy and future activity?
An index figure racing into the high 50s and above means purchasing agents are waiting longer to receive material they ordered. This normally occurs when demand is so strong that suppliers are having trouble shipping goods in time. In such a climate, suppliers can regain pricing power, which, of course, also raises fresh concerns about future inflation.
What does the price index tell us?
The price index reflects the change in prices paid by manufacturers for material. It can tell you if inflation is accelerating or decelerating early in the production process.
What does the customer inventories index tell us? High number? Low number? WHat are the implications?
A higher number means more customers are unhappy about the buildup in their inventories and are thus less likely to place new orders, which augurs slower factory output in the near future. If they perceive those inventories to be low and the index falls below 50, it should be viewed as a positive development.
Dwindling customer inventories can lead to greater production by manufacturers because their clients will eventually need to replenish their own stock of goods to stay in line with sales.
What individual indices make up the overall PMI index?
new orders (20%),
manufacturing production (20%),
employment (20%),
supplier deliveries (20%), and
inventories (20%).
What are the ten individual indices that make up the ISM manufacturing report?
New orders Manufacturing production Employment Supplier deliveries Inventories Customer's inventories Backlog of orders Commodity prices New export orders Imports
When is the manuf. ISM PMI reported?
How frequently?
At what time?
Market sensitivity?
First business day of the month
Monthly
10:00 am
Very high
How is the ISM Manufacturing PMI Survey conducted?
Questionnairs are mailed out by the ISM every month to about 400 member companies around the country.
These 400 member companies represent 20 different industries.
Corporate purchasing managers are asked to assess whether activity is rising, falling, or unchanged.
