Understanding the ISM Manufacturing Index: Key to U.S. Economic Trends

By Markets & Investing DeskUpdated Nov 10, 2026

Illustration · Fintrev

Definition

The ISM Manufacturing Index is a monthly survey of U.S. purchasing managers that tracks factory activity. Readings above 50 signal expansion, below 50 contraction, and exactly 50 no change.

Key takeaways

The headline PMI is a simple average of new orders, production, employment, supplier deliveries and inventories.
Each component equals the percent reporting higher plus half the percent reporting the same.
A supplier deliveries reading above 50 means deliveries are slowing, which ISM treats as a sign of strength.
The report comes out on the first business day of the month at 10:00 a.m. Eastern, ahead of most official data.

The ISM Manufacturing Index, formally the Manufacturing ISM Report on Business and widely called the ISM Manufacturing PMI (purchasing managers’ index), is a monthly survey-based indicator of U.S. factory activity published by the Institute for Supply Management. Purchasing and supply executives at manufacturing firms report whether conditions at their companies improved, worsened or held steady compared with the prior month. A headline reading above 50 means manufacturing expanded from the previous month. A reading below 50 means it contracted. A reading of exactly 50 means no change.

What ISM stands for and who publishes it

ISM is the Institute for Supply Management, a not-for-profit professional association for supply chain and purchasing professionals. It publishes two monthly PMI reports:

Manufacturing ISM Report on Business: first business day of the month, 10:00 a.m. Eastern.
Services ISM Report on Business: third business day of the month, same time. It covers the non-manufacturing sector.

How the survey works

Respondents are purchasing managers and supply executives drawn from manufacturing companies across the country. The panel is spread across industries according to the North American Industry Classification System (NAICS) and weighted by each industry’s contribution to U.S. gross domestic product. Results are grouped into 18 industry sectors, including chemical products, computer and electronic products, and transportation equipment.

For each topic, a respondent answers one question: is this activity higher, lower or the same as last month? The survey covers ten activities:

Survey category	In the headline PMI?	How to read a reading above 50
New orders	Yes	More firms report rising orders
Production	Yes	Output is increasing more widely
Employment	Yes	Headcount is growing more widely
Supplier deliveries	Yes	Deliveries are slowing
Inventories	Yes	Firms’ own stocks are rising
Customers’ inventories	No	Customers’ stocks are seen as too high
Prices	No	Input prices are rising more widely
Backlog of orders	No	Unfilled orders are growing
New export orders	No	Foreign orders are increasing
Imports	No	Purchases of imported materials are rising

Two categories run against intuition. Supplier deliveries above 50 means deliveries are getting slower. ISM counts slower deliveries as a sign of strength because suppliers usually fall behind when demand is heavy. Customers’ inventories below 50 means respondents think their customers hold too little stock, which can point to future orders.

All indexes are seasonally adjusted. This keeps predictable patterns, such as holiday shutdowns, from showing up as expansion or contraction.

Calculating the ISM Manufacturing PMI

The diffusion index formula

Each category becomes a diffusion index:

Diffusion index = % reporting higher + (0.5 × % reporting the same)

Firms that report “lower” contribute nothing. Firms that report “same” count as half. When improvements and declines are equally common, the index lands at 50.

Hypothetical example: in one category, 30% of respondents report higher activity, 50% report no change and 20% report lower activity.

30 + (0.5 × 50) = 30 + 25 = 55

From components to the headline number

The headline PMI gives each of the five core components a 20% weight, which is the same as taking their simple average.

Hypothetical month (illustrative values only):

New orders: 55.0
Production: 53.0
Employment: 48.0
Supplier deliveries: 52.0
Inventories: 47.0

PMI = (55.0 + 53.0 + 48.0 + 52.0 + 47.0) ÷ 5 = 255 ÷ 5 = 51.0

The headline shows modest expansion even though employment and inventories are below 50. That is why the component lines often matter as much as the headline. Here, a 51.0 driven by orders and production is a different month from a 51.0 driven mainly by slower deliveries.

Reading the report

ISM publishes each index with its month-over-month change in percentage points, a direction (growing, contracting, slowing, increasing), a rate of change (faster, slower, or “from contracting”) and a trend count. The trend count shows how many consecutive months the index has moved in its current direction.

Some practical points for interpretation:

Direction versus level. Because 50 is the dividing line, a move from 47 to 49 is still contraction, only less widespread, and a drop from 58 to 54 is still expansion, only less broad.
New orders as the forward signal. Orders come before production and hiring. Analysts often read a sustained gap between new orders and inventories as a hint about where output is heading.
Prices as an inflation input. The prices index sits outside the headline PMI but draws attention as an early read on cost pressure in goods.
Trend length. A run of months in the same direction carries more weight than a single reading slightly above or below 50.

Why markets watch it

The manufacturing report arrives at the very start of the month, ahead of most official government data covering the same period. That timing is a large part of its market impact. Its respondents are also close to the supply chain: manufacturers raise or cut material purchases in anticipation of demand for finished goods, so purchasing managers tend to see turns early. That is why the index is treated as a leading indicator, though as a survey it points to likely direction rather than forecasting growth figures.

The links to asset prices run through expectations:

Stocks: a rising index is generally read as supportive of corporate earnings, which can lift equity indexes such as the S&P 500.
Bonds: a stronger reading can weigh on bond prices, since faster growth and firmer input prices raise inflation and interest-rate expectations.
Business planning: companies use the sector detail to judge demand conditions in their own industries and among suppliers.

Markets react mainly to the gap between the actual reading and what forecasters expected, not to the number alone. A reading of 49 can move markets upward if economists had expected 47.

Limitations

Breadth, not magnitude. A diffusion index counts how many firms report change, not how much they changed. A month in which most firms see slight gains can score higher than a month in which fewer firms see large gains.
Manufacturing is one part of the economy. Services make up a larger share of U.S. output, so a weak manufacturing PMI does not by itself mean the whole economy is contracting.
Subjective responses. Answers reflect respondents’ perceptions compared with the prior month and are not measured quantities.
Supply shocks can distort the headline. Because slower supplier deliveries add to the PMI, delivery bottlenecks can lift the headline even when demand is not stronger. Checking new orders and production helps separate the two.
No dollar values. The index does not report output, sales or employment levels. For those, readers need official data such as industrial production, payrolls or GDP.

ISM PMI vs. other PMIs and indicators

ISM Manufacturing vs. ISM Services: both come from the same institute and use the same diffusion method. The services survey covers non-manufacturing businesses and comes out two business days later.
ISM vs. S&P Global U.S. Manufacturing PMI: S&P Global publishes a separate U.S. manufacturing PMI from its own panel and weighting. Both use the 50 threshold but can diverge in a given month, so trace any headline “U.S. manufacturing PMI” figure to its publisher.
PMI vs. CPI: the ISM prices index shows how many firms face rising input costs. The Consumer Price Index measures the actual change in consumer prices.

FAQs

Does the ISM Manufacturing PMI affect the dollar or gold?

It can. A reading well above expectations tends to raise expectations for growth and interest rates, which can support the U.S. dollar and weigh on non-yielding assets such as gold. A weak surprise can do the opposite. The size and direction of any move depend on the forecast gap and on whatever else is driving markets that day.

Why are ISM readings sometimes shown with a percent sign?

ISM publishes its indexes as percentages (for example, "52.0%") because each diffusion index is built from the shares of respondents giving each answer. Market calendars often drop the percent sign. Either way the number means the same thing, with 50 as the line between expansion and contraction.

The Bottom Line

Investors, economists and business planners use the ISM Manufacturing Index as an early read on the direction of U.S. factory activity. The headline alone can mislead, so readers should check new orders, production and the trend count, and compare results with forecasts. Because the index measures breadth of change rather than size, official data such as industrial production and GDP are still needed to judge actual output.