Indicator Series Vol. 7: ISM Surveys

The Institute of Supply Management reports monthly on both manufacturing activity and non-manufacturing (services) activity through a survey of “boots on the ground” purchasing managers. A reading over 50 implies business expansion, and one below implies contraction. Below is a graph of the manufacturing survey’s expansionary reading beating out those after 2004.


While this is important, the US economy can be characterized as a service economy because roughly 2/3 of GDP comes from non-manufacturing activities. The graph below shows a massive jump to nearly 60, creating a new high post-2005.


To get the most accurate picture of GDP, we can blend these two surveys, with a 33%/67% weighting. What is certain from the graph below is that since the mid 90’s the purchasing managers index tends to fall precipitously before a recession.

Blend w recessions.png

One important thing to note here is that this is considered “soft data”. Although the ISM survey is useful as a proxy for how the purchasing managers feel and view activity, it may not translate into economic growth for any number of reasons. The graph below from the WSJ shows this discrepancy.


With the GDP proxy at 60, it is safe to say that, using these surveys, the economy is on solid ground, but the hard data is something to keep an eye on as a persistent gap will prove this survey less useful going forward.

Source: Bloomberg, ISM, WSJ Daily Shot 10.18.17