ISM Manufacturing PMI

What Is the ISM Manufacturing PMI?

The ISM Manufacturing Purchasing Managers' Index is a monthly diffusion index produced by the Institute for Supply Management, based on a survey of approximately 300 US manufacturing firms. It measures the breadth of expansion or contraction across five sub-categories: new orders, production, employment, supplier deliveries, and inventories.

The index is scaled around 50 — readings above 50 signal expansion (more firms reporting higher activity than lower), readings below 50 signal contraction. The release is the first major data point each month and one of the highest-tier leading indicators of the manufacturing sector and broader business cycle.

Why It Matters for Markets

The ISM PMI is a top-tier leading indicator. Sustained readings below 46 have historically coincided with NBER-dated recessions; readings above 55 are associated with strong expansions. The release moves equity markets and bond yields substantially on surprises, with the 10-year Treasury often moving 5-10 basis points and S&P 500 futures moving 0.3-0.7% in the minutes after the release.

The PMI's predictive power for industrial production is well-documented — it leads IP by 1-3 months and has been a reliable signal at business-cycle turning points. It is one of the four primary indicators in the Conference Board Leading Economic Index.

How to Read the Print

Headline PMI vs 50 line. The simplest signal: above 50 is expansion, below 50 is contraction. Sustained readings 1-2 points below 50 are mild contraction; sustained readings 5+ points below 50 signal manufacturing recession.

New orders sub-index. The most forward-looking component. New orders typically lead the headline PMI by 1-2 months because they capture demand before it shows up in production data.

Prices paid sub-index. The cleanest manufacturing-sector inflation signal. Prices paid above 60 typically coincides with manufacturing input-cost pressure; below 45 signals deflation in manufacturing inputs.

Employment sub-index. A leading indicator of NFP manufacturing employment. Sustained employment sub-index below 50 typically precedes weakness in the BLS manufacturing employment series.

Historical Context

The ISM data series goes back to 1948. The 2010-2019 average was approximately 52.5. The pandemic shock dropped ISM to 41.5 in April 2020, the lowest since the GFC. The 2021 reopening produced a peak of 63.7 in March 2021, then ISM trended lower as the inflation cycle and rate-hike regime tightened conditions.

Through 2024-2025, ISM has run in the 47-50 range — below the expansion threshold but not at recession-watch levels. The persistence of sub-50 readings while the broader economy has continued to expand reflects the unusual manufacturing/services divergence of this cycle. The new orders sub-index has been the most reliable forward signal, ticking back above 50 in late 2024 as the rate-cut cycle began.