ISM Report On Business

Last updated
ISM Manufacturing index ISM Manufacturing index.png
ISM Manufacturing index

The ISM Report On Business (ROB), also known as the ISM Report, is the collective name for two monthly reports, the Manufacturing ISM Report On Business and the Services ISM Report On Business(formerly Non-Manufacturing), published by Institute for Supply Management. The ROB is based on a national survey of purchasing managers tracking changes in the manufacturing and services sectors. It is considered to be one of the most reliable economic barometers of the U.S. economy and gives an important early look at the health of the nation's economy. [1] In addition to being market moving, the ROB makes an important contribution to the American statistical system and to economic policy. It also has one of the shortest reporting lags of any macroeconomic series. [2]

Contents

History

The origin of the Manufacturing ISM Report On Business can be traced back to 1923. The ISM, then known as the National Association of Purchasing Agents (N.A.P.A.), began to survey its members and share the results with them. Three years later, N.A.P.A. selected Edward T. Gushee, a purchaser from Detroit, Michigan, to supervise the organization's survey group and expand the information they gathered.

In 1930, U.S. President Herbert Hoover sought information that could help resolve the economic difficulties of the Great Depression. With President Hoover's support, the U.S. Chamber of Commerce organized a committee to gather pertinent business data from companies that were members of the Chamber. However, after many attempts efforts to gather this information, the committee disbanded in June 1931.

Both John R. Whitehead, the newly elected president of N.A.P.A. who represented the association on this committee, and George A. Renard, N.A.P.A's executive secretary, wanted to continue the committee's work. They believed a survey would support the country's economy and help purchasing professionals. Under their leadership, the newly founded Business Survey Committee surveyed the association's membership on business conditions. Renard tabulated the results and sent them to President Hoover.

The positive feedback from N.A.P.A. members and the government led N.A.P.A. to continue to survey its members. Other than for a four-year interruption during World War II, ISM (and its predecessors) have published the report since 1931. [1]

Manufacturing ISM Report On Business featuring the PMI

While the ISM has published the manufacturing report since 1931, in the early 1980s, the U.S. Department of Commerce (DOC) and ISM developed the Purchasing Managers' Index (PMI). The index, based on analytical work by the DOC, adjusts four of the five components of ISM's monthly survey — new orders, production, employment, supplier and deliveries — for normal seasonal variations, adds in inventories, applies equal weights to each and then calculates a single monthly index number.

An update of research performed by Theodore S. Torda, a DOC economist, shows a close parallel between growth in real Gross Domestic Product (GDP) and the PMI. The index can explain about 60 percent of the annual variation in GDP, with a margin of error that averaged ± .48 percent during the last ten years. George McKittrick, a former DOC economist said "Not only does the PMI track well with the overall economy, but the indication provided by ISM data about how widespread changes are, complements analogous government series that show size and direction of change."

In January 1989, the Supplier Deliveries Index from the Report became a standard element of the DOC's Bureau of Economic Analysis Index of Leading Economic Indicators. The data was incorporated into the index from June 1976 forward. In January 1996, The Conference Board began to compile this index.

Services ISM Report On Business(formerly Non-Manufacturing)

The origin of the Services ISM Report On Business can be traced to 1996. Over the years, there had been a shift in ISM's membership from nearly 100 percent manufacturing firms in the 1930s to almost 50 percent services firms by 1996 such as:

Also, by this time, the services sector of the U.S. economy was responsible for about 80 percent of gross domestic product (GDP), the primary measure of economic activity. There also was a trend toward the services share of the economy continuing to increase in the future. While the existing ISM Manufacturing Report On Business was well-accepted as one of the primary indicators of overall U.S. economic activity, ISM felt that to fully capture all economic activity and to enable all members of ISM to participate in the survey, a services version of the Report On Business should be considered. As a result, in 1996, it formed a committee to explore the development of the Services ISM Report On Business. By the spring of 1997 the pilot was considered successful. In July of that year, routine monthly data collection began.

Monthly public reporting and release of data debuted in June 1998 with the release of the May 1998 data and ten months of data history. The Services ISM Report On Business is released on the third business day of each month, and is based on data compiled from monthly surveys sent to purchasing executives working in the services industries across the country. The process, content and format of the report parallel that of the manufacturing report with only a few differences. Each month, the survey responses reflect change, if any, in the current month's report compared to the previous month. The report covers:

The Services Index which is a weighted composite index for services data (similar to the Purchasing Managers' Index (PMI)) was developed and first published in the January 2008 Non-Manufacturing ISM Report On Business. This was not available prior to that date because there was insufficient services historical data to develop a composite index.

Methodology

All the ISM indexes are diffusion indexes and are indicators of month-to-month change. The percent response to the "Better," "Same," or "Worse" question is difficult to compare to prior periods; therefore, ISM diffuses the percentages for this purpose. A diffusion index indicates the degree to which the indicated change is dispersed or diffused throughout the sample population. Respondents to ISM surveys indicate each month whether particular activities (e.g., new orders) for their organizations have increased, decreased, or remained unchanged from the previous month.

The ISM indexes are calculated by taking the percentage of respondents that report that the activity has increased ("Better") and adding it to one-half of the percentage that report the activity has not changed ("Same") and adding the two percentages. Using half of the "Same" percentage effectively measures the bias toward a positive (above 50 percent) or negative index. As an example of calculating a diffusion index, if the response is 20 percent "Better," 70 percent "Same," and 10 percent "Worse," the Diffusion Index would be 55 percent (20% + [0.50 x 70%]). A reading of 50 percent indicates "no change" from the previous month. Economists and statisticians have determined that the farther the index is away from the amount that would indicate "no change" (50 percent), the rate of change is greater. Therefore, an index of 60% indicates a faster rate of increase than an index of 55% (increased activity is becoming more dispersed), and an index of 35% indicates a faster rate of decrease than an index of 40% (decreased activity is becoming more dispersed). A value of 100 indicates all respondents are reporting increased activity while 0 indicates that all respondents report decreased activity.

ISM Supply Chain Planning Forecasts (formerly Semiannual Economic Forecasts)

The ISM Supply Chain Planning Forecasts (formerly Semiannual Economic Forecasts) are released in May and December and provide insight into both the manufacturing and non-manufacturing sectors of the U.S. economy. The data in the current report compares information from the previous report versus what current conditions are. This report also offers a forecast for the next six months.

Media

Most major financial media agencies cover the Report each month on the first and third business day of the month. Articles regularly appear in The Wall Street Journal, Financial Times , MarketWatch, MNI, Bloomberg and others.

Controversy

On June 2, 2014, ISM released the ROB and then revised it twice in the span of about two-and-a-half hours, a highly unusual event. The initial figure of 53.2 was lower than anticipated and indicated a slowing of the pace of factory-sector growth, and this caused stocks to dip instantly. Economists immediately queried the accuracy of the report and determined that ISM had incorrectly applied seasonal adjustments from the previous month.

ISM's final correction of 55.4 was almost in line with Wall Street expectations, indicating brisk growth, and the stock market rebounded quickly and closed the day with a modest gain. In a statement, ISM attributed the errant report to a software glitch that "incorrectly used the seasonal adjustment factor from the previous month."

Related Research Articles

In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster. There is no official definition of a recession, according to the IMF.

A consumer confidence index (CCI) is an economic indicator published by various organizations in several countries.

The Non-Manufacturing Business Activity Index is a seasonally adjusted index released by the Institute for Supply Management measuring business activity and conditions in the United States service economy as part of the Non-Manufacturing ISM Report on Business. The index is composed of 4 sub-indicators, each of which have a 25% weight: business activity, new orders, employment and supplier deliveries.

Institute for Supply Management (ISM) is the world's oldest and largest supply management association. Founded in 1915, the U.S.-based not-for-profit educational association serves professionals and organizations with interest in supply management, providing education, training, qualifications, publications, information, and research.

The Non-Manufacturing ISM Report on Business is a purchasing survey of the United States service economy, published by the Institute for Supply Management since June 1998. Its results are a popular economic indicator and forecaster. The survey is currently written by Anthony Nieves, C.P.M., CFPM, the Senior Vice President of Supply Management for Hilton Hotels Corporation.

<span class="mw-page-title-main">Economic indicator</span> Measure, which allows statements about the economic situation in general of national economies

An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles. Economic indicators include various indices, earnings reports, and economic summaries: for example, the unemployment rate, quits rate, housing starts, consumer price index, inverted yield curve, consumer leverage ratio, industrial production, bankruptcies, gross domestic product, broadband internet penetration, retail sales, price index, and changes in credit conditions.

<span class="mw-page-title-main">U.S. Producer Price Index</span> Official measure of producer prices in the economy of the United States

The Producer Price Index (PPI) is the official measure of producer prices in the economy of the United States. It measures average changes in prices received by domestic producers for their output. The PPI was known as the Wholesale Price Index, or WPI, up to 1978. It is published by the Bureau of Labor Statistics and is one of the oldest economic time series compiled by the Federal government of the United States.

<span class="mw-page-title-main">Nonfarm payrolls</span> American economic employment indicator

Nonfarm payroll employment is a compiled name for goods, construction and manufacturing companies in the US. Approximately 80% of the workforce is accounted for nonfarm payrolls and it excludes farm workers, private household employees, actively serving military or non-profit organization employees. Approximately 131,000 businesses and government agencies, which amounts to around 670,000 worksites, are surveyed on a monthly basis.

Consumer confidence is an economic indicator that measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. If the consumer has confidence in the immediate and near future economy and his/her personal finance, then the consumer will spend more than save.

In econometrics, a dynamic factor is a series which measures the co-movement of many time series. It is used in certain macroeconomic models.

The Ivey Purchasing Managers Index (IPMI), also known as the Ivey PMI, is an economic indicator in Canada that reflects month-to-month changes in the dollar value of purchases as reported by a panel of purchasing managers across various sectors. Jointly sponsored by the Purchasing Management Association of Canada (PMAC)—now integrated into the Supply Chain Management Association (SCMA)—and the Richard Ivey School of Business at Western University, Ontario, the index serves as a key measure of economic activity in Canada.

<span class="mw-page-title-main">Purchasing Managers' Index</span> Economic indicator

Purchasing managers' indexes (PMI) are economic indicators derived from monthly surveys of private sector companies.

The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables. These variables have historically turned downward before a recession and upward before an expansion. The per cent change year over year of the Leading Economic Index is a lagging indicator of the market directions.

The U.S. Import and Export Price Indexes measure average changes in prices of goods and services that are imported to or exported from the U.S.. The indexes are produced monthly by the International Price Program (IPP) of the Bureau of Labor Statistics. The Import and Export Price Indexes were published quarterly starting in 1974 and monthly since 1989.

The Philadelphia Fed Report, formally known as the Business Outlook Survey and sometimes abbreviated as BOS, is a monthly survey produced by the Federal Reserve Bank of Philadelphia which questions manufacturers on general business conditions. The index covers the Third Federal Reserve District, namely covers eastern and central Pennsylvania, the nine southern counties of New Jersey, and Delaware. The report is sometimes also called the Philadelphia Fed Index because it includes reporting of some index values.

The Canadian Index of Consumer Confidence (ICC) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. In Canada consumer confidence is issued monthly by The Conference Board of Canada, an independent research organization, and is based telephone survey of 2,000 households.

The Ifo Business Climate Index is a closely followed leading indicator for economic activity in Germany prepared by the Ifo Institute for Economic Research in Munich, Germany.

The Ceridian-UCLA Pulse of Commerce Index (PCI) is based on real-time diesel fuel consumption data for over-the-road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over-the-road movement of raw materials, goods-in-process, and finished goods to U.S. factories, retailers, and consumers.

The Credit Managers' Index(CMI) is a monthly economic indicator of financial activity reflecting credit managers' responses to levels of favorable and unfavorable factors. The measure has been sourced in stories from publications such as the Wall Street Journal, CFO and Bloomberg.

The 2015-2016 Chinese stock market turbulence began with the popping of a stock market bubble on 12 June 2015 and ended in early February 2016. A third of the value of A-shares on the Shanghai Stock Exchange was lost within one month of the event. Major aftershocks occurred around 27 July and 24 August's "Black Monday". By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses. Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall. After three stable weeks the Shanghai index fell again by 8.48 percent on 24 August, marking the largest fall since 2007.

References

  1. 1 2 Baumohl, Bernard (2005). Hidden Clues to Future Economic Trends and Investment Opportunities. Upper Saddle River, NJ: Wharton School Publishing. pp. 147–156. ISBN   978-0132932073.
  2. ↑ Griffis, Michael (2011). Economic Indicators for Dummies. Hoboken, NJ: John Wiley & Sons. p. 203. ISBN   978-1-118-16389-4.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.