Investment Clock insights

ISM v PMI


Ian Kernohan 

20 July 2017

The Institute of Supply Management (ISM) manufacturing series has long been used to track trends in the US manufacturing sector.  The series stretches back to 1950 and has assumed near sacred status.
While we are sometimes told “never ignore the ISM!”, in truth it can be quite a volatile friend, often creating mini panics about slowdown (sometimes even “recession”) when they are unwarranted.  The most recent example of this was in September 2016, when an ISM print of 49.4 sparked a lot of erroneous speculation about economic slowdown and a significant shift in US Federal Reserve (Fed) policy away from tightening.  
At present the gap between the ISM and PMI has widened, with the ISM painting a very buoyant picture, while the PMI has fallen.  

The Institute of Supply Management (ISM) manufacturing series has long been used to track trends in the US manufacturing sector. The series stretches back to 1950 and has assumed near sacred status.

While we are sometimes told “never ignore the ISM!”, in truth it can be quite a volatile friend, often creating mini panics about slowdown (sometimes even “recession”) when they are unwarranted. The most recent example of this was in September 2016, when an ISM print of 49.4 sparked a lot of erroneous speculation about economic slowdown and a significant shift in US Federal Reserve (Fed) policy away from tightening.  

At present the gap between the ISM and PMI has widened, with the ISM painting a very buoyant picture, while the PMI has fallen.  

Apart from the PMI, other indicators such as the Economic Cycle Research Institute (ECRI) leading indicator and Philly Fed survey also suggest some caution would be appropriate on the message from the relatively high ISM reading.

We have long used PMI data to track the manufacturing sectors in other economies in our investment clock model, and with 10 years of monthly PMI data now available, we are bringing the US into line.  Of course, we will continue to pay attention to trends in the ISM as a cross check.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.