ISM: U.S. Manufacturing (PMI) Expanded Less Than Expected In July

by Ike Obudulu Posted on August 1st, 2018

Manufacturing expanded in July as the PMI registered 58.1 percent (less than economists expectations of 59.4 percent), a decrease of 2.1 percentage points from the June reading of 60.2 percent. “This indicates strong growth in manufacturing for the 23rd consecutive month, led by continued expansion in new orders, production and employment. Inventories are expanding at a faster rate as a result of supplier deliveries improving compared to the prior month,” ISM said. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the July PMI indicates growth for the 111th consecutive month in the overall economy and the 23rd straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the PMI® for July (58.1 percent) corresponds to a 4.6-percent increase in real gross domestic product (GDP) on an annualized basis.”

Why Markets Care About ISM Manufacturing PMI

ISM Manufacturing PMI (also called Manufacturing ISM Report On Business) measures the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry

It is derived from a survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories;

It is released monthly, on the first business day after the month ends by the Institute for Supply Management (ISM) – before most of the official data on industrial output, manufacturing and Gross Domestic Product (GDP) become available.

The PMI covers five major survey sectors/areas: new orders, inventory deals, supplier deliveries & employment, and production. In doing so, it asks the respondents about changes in their discernment of key business variables from the month before. After getting the data, a composite index is constructed.

So, basically, it is a survey-based measure that asks questions about any change in business conditions, whether it is improving or not.

The Purchasing Managers’ Index (PMI) is a number from 0 to 100. Above 50 indicates expansion, below 50 indicates contraction, and at 50 indicates no change.

PMI = (Pi * 1) + (Pn * 0.5) + (Pd * 0)

Pi = percent of answers reporting an improvement
Pn = percent of answers reporting no change
Pd = percent of answers reporting a deterioration

The usual effect s that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

ISM Manufacturing PMI is a leading indicator of economic health – businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. PMI is both survey-based and an investor sentiment measure of the economy’s manufacturing sector. Digital participants and investors who invested in some manufacturer company must keep up with the market trends by following purchasing managers’ index (PMI).

Other Economy News – ADP Non Farm Employment Change

Private payrolls in the U.S. increased by more than expected last month as companies get a boost from lower corporate taxes, ADP and Moody’s Analytics said Wednesday.

Jobs in the U.S. increased by 219,000 in July, while economists polled by Reuters expected a gain of 185,000. July’s job gains were the best since February, when 241,000 jobs were added. Jobs growth for the previous month was also revised up to 181,000 from 177,000.

“The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending,” said Mark Zandi, chief economist of Moody’s Analytics, in a statement. “Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signaling the threat.”

Leave a Reply