ISM

Formerly known as the Purchasing Manager's Index (PMI), the Institute of Supply Management (ISM) report uses a base scale of 50 to show changes in growth for the manufacturing industry. An index of less than 50 means the industry is contracting from the original base period, while a result exceeding 50, indicates growth. Results are adjusted to take into account seasonal changes in the industry.

The ISM is considered the most accurate gauge of overall factory production – the information on new orders is especially insightful as it highlights manufacturing activity for the upcoming time period. While not as useful for detecting inflation as the CPI, the ISM is still considered to be one of the key indicators of the inflationary pressures in the economy. For these reasons, it is a highly anticipated report.

Effect on the Markets

FX Market

As another indicator tracking inflationary pressures in the economy, an ISM trending upwards can suggest a growing economy which makes the currency attractive to FX traders.

Bond Market

A growing economy as suggested by a strong ISM result may trigger an interest rate hike to cool the economy to a sustainable level if inflation if a concern. An increase in interest rates generally results in a devaluation of fixed income instruments.

Stock Market

The stock market usually reacts to ISM news in a similar manner as the FX markets; if the ISM suggests the economy is strong with little fear of a tightening of the monetary policy, then investors may direct more investment to equities.

Market Relevance

The ISM provides an accurate assessment of manufacturing totals and is a highly relevant assessment of industrial growth.

When Published

The ISM is published monthly.

Volatility

Considered to have a moderate influence on the markets.