.A monthly index based on a survey of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Mfg Index is the first read we get on the economy at the start of each month.
The Manufacturing ISM Report On Business and the Non-Manufacturing ISM Report On Business gather data on a monthly basis through surveys of supply management professionals participating in the Business Survey Committee.
The make-up of this committee is determined by industry category and is based on each industry's contribution to Gross Domestic Product.
The Institute of Supply Chain Management sends out surveys every month based on the following 10 subindices:
How to interpret the Chart? Generally, an ISM value of 50 is considered neutral, a value of over 50 points as an expansion of the manufacturing sector and a value of less than 50 points a decline in industrial production views. In other words, a ISM Manufacturing Index above 50% indicates that the manufacturing economy is generally expanding; below 50% that it is generally declining. Any level below 43 indicates that the economy is in recession.
Stock Market Impact When this index is increasing, investors can assume that the stock markets should increase because of higher corporate profits. New orders, the most important detail in the report.
Bond Market Impact The opposite can be thought of the bond markets, which may decrease as the ISM Manufacturing Index increases because of sensitivity to potential inflation.
Why Investors should follow this report By monitoring the ISM Manufacturing Index, investors are able to better understand national economic conditions.
Revisions The ISM manufacturing index is available very early in the month and not subject to revision. The ISM Mfg index is a big mood-setter for the market and has an average lead before the actual industrial production three to six months.
Seasonal Adjustment The ISM Mfg index is Seasonally Adjusted so the values of neighboring months are usually easier to compare. When seasonal adjustment is not done with monthly data, year-on-year changes are utilised in an attempt to avoid contamination with seasonality.
Manufacturing Category This report has a big influence on the markets by providing important data to the Manufacturing Sector which is a major source of cyclical variability in the economy.
For example: A wider gap between New Orders and Inventories is a decent leading indicator for further production gains.
Market Importance High. Nearly always moves markets. Extremely timely -- and this is the king of all manufacturing indices. Considered the single best snapshot of the condition of the factory sector.
A limitation of the survey is that it doesn't include any questions on wages, which is an important component of overall costs.
The survey is sent towards the people who have the power to buy stuff and hire people so they have to answer a few simple questions. How to Invest in Manufaturing?
The following ETFs give ample exposure to other companies which are likely to reap the benefits of increased manufacturing
1) iShares Dow Jones US Industrials (IYJ)
2) Industrials SPDR (XLI)
