When the Institute for Supply Management (ISM) Purchasing Manager's Index fell below 50 in December, many asked about ISM's index calculation.
The ISM index is the result of a monthly survey of over 400 manufacturing companies in 20 industries throughout the 50 states. The survey queries respondents on a number of monthly indicators, including orders, production, employment, inventories, delivery times, prices paid, export orders, and import orders. Respondents are asked to characterize each indicator as higher, lower, or unchanged for the month. They are not asked for specific numbers, only a thumbs-up or a thumbs-down.
Based on the responses, the ISM calculates an index for each of the components. An index of 50 is the theoretical break-even mark, with readings above indicating strength, and below indicating weakness. December's reading of 47.7 indicates slowing growth in U.S. manufacturing.