What Is the ISM Non-Manufacturing Index?

The ISM Non-Manufacturing Index, now known as the Services Purchasing Managers’ Index (PMI), is a crucial gauge of the economic health and performance of service-based companies. This index is a part of the Institute of Supply Management’s comprehensive ISM Report On Business—Manufacturing and Services, providing a snapshot of trends in the service sector by surveying over 400 services firms.

Key Takeaways

• The ISM Non-Manufacturing Index surveys purchasing and supply executives of service companies.
• The Services Purchasing Managers’ Index is a vital component of the ISM Report On Business.
• The Services PMI encompasses more than 15 industries, measuring critical aspects like employment, prices, and inventory levels.
• It serves as a key indicator of business activity for the broader economy, with readings above 50 indicating growth and below 50 suggesting contraction.

Understanding the ISM Non-Manufacturing Index

The Services PMI is a vital tool developed by the ISM in collaboration with the U.S. Department of Commerce to monitor activities within supply management. Divided into three segments—Manufacturing PMI, Hospital PMI, and Services PMI—this index informs professionals, leaders, economists, and policymakers about the nation’s economic landscape.

This index is pivotal in providing insights into the condition of the nation’s service sector through a diffusion index based on survey data.

Released monthly, the Services PMI offers a detailed view of the U.S. economy from a non-manufacturing perspective, featuring stable data valuable for long-term economic forecasting.

April 2024 saw a decline in economic activity, marking a notable shift after 15 consecutive months of growth.

Special Considerations

Monitoring the Services PMI provides investors with a glimpse into the U.S. economic climate, aiding in strategic investment decisions across different service sectors. It sheds light on factors influencing total output, growth, and inflation.

When the business activity index rises, it could signal a potential uptick in stock markets due to expected corporate profit boosts. Furthermore, when aligned with the ISM Manufacturing PMI, these indices cover a significant portion of the U.S. economy’s goods and services, reflected in the GDP.

Institute for Supply Management, a non-profit organization spanning multiple countries, focuses on education, research, and leadership development in the supply management sphere.

Components of the ISM Non-Manufacturing Index

The ISM report encompasses aspects that gauge business growth or contraction, offering valuable insights into the supply management process.

Business Activity

The Services PMI report provides an overall outlook on business activity in the U.S., indicating economic growth above 50 and contraction below 50. It also details industries experiencing growth or decline.

New Orders

New orders reflect recorded sales for the month, showcasing changes in demand compared to prior periods, aiding in gauging economic growth trends.

Employment Trends

Monthly employment data reveals growth or contraction, providing insights into labor market dynamics and economic health.

Inventories

Tracking inventory levels aids in understanding service demand and economic growth patterns.

Prices

Price fluctuations offer insights into inflation and supply dynamics in the market.

ISM Non-Manufacturing vs. Manufacturing Index vs. Hospital Index

The ISM consists of three key indexes—Services (Non-Manufacturing Index) PMI, Manufacturing PMI, and Hospital PMI—each playing a crucial role in evaluating economic conditions in various sectors.

What’s the Difference Between the ISM Non-Manufacturing Index and the Services PMI?

The ISM Non-Manufacturing Index and the Services PMI are synonymous, serving as critical tools in assessing the economic landscape through surveys of purchasing and supply executives from numerous service companies.

What Does the Institute of Supply Management Do?

The Institute of Supply Management, boasting over 50,000 members globally, is a nonprofit organization offering education, certification, and research in the supply management realm since 1915.

Is the Services PMI a Leading Indicator?

Indeed, the Services PMI stands as a leading indicator, providing stakeholders with vital insights into economic sentiment and activity within the service sector through surveys of 400 service companies’ executives.

The Bottom Line

Leading indicators like the Services PMI can guide economists and investors in forecasting economic trends and making informed investment decisions. By tracking business sentiments and activities, this index offers a clear perspective on economic growth trends.