Investment markets around the globe are sensitive to various economic indicators that give traders the first indications where an economy is headed. If an investor can tap into these changes relatively early, then he can hopefully benefit from such crucial news. One of the earliest and most significant economic indicators that are published on a monthly basis is the ISM (Institute for Supply Management) Manufacturing survey or figure.
What Exactly Is the ISM Manufacturing Survey?
The ISM Manufacturing survey is a leading indicator of the economy that measures the manufacturing portion of the GDP (Gross Domestic Product). It achieves the portion by surveying the people on the front line - the purchasing managers. Purchasing managers from around the USA (from over 300 companies) are questioned regarding their expectations for such things as their company's future production, employment, inventories, new orders, and deliveries. Even though it is an estimate, it is still valuable information since the purchase managers have their hand on the pulse of things to come. It acts as a true leading indicator, as changes in manufacturing numbers often pre-date overall economic changes, such as overall growth in the economy or movement towards a recession.
How Timely Is the Report?
Unlike other indexes that have a lag time of a month or so, the ISM Manufacturing figure is published only one business day after the reporting month. With such a small lag time, this index really measures timely economic behavior that investors can really benefit from. In fact, the ISM report happens to be one of the most significant market leading indicators around.
The ISM Manufacturing figure is computed by compiling the survey answers to the questions regarding future production, employment, inventories, new orders, and deliveries, which are then weighted to determine the actual index number. That actual index number is called the Purchasing Managers Index (PMI). A value over 50 represents a growing economy, which would positively affect the dollar's currency exchange rate. A value falling somewhere between 44 and 50 would represent an economy that might still be expanding, but with lower manufacturing activity. If the PMI falls below 43, it can signal contraction in an economy, which could then negatively affect dollar currency exchange rates for the Forex market.
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