Manufacturing may comprise just 12% of the U.S. economy, but the monthly ISM manufacturing report is worth checking for economic growth.
Although the U.S. manufacturing sector was hit hard in recent decades amid an exodus of many jobs overseas, it remains a critical component of the total economy. Manufacturing comprises only about 12% of the U.S. economy today, but its performance often foretells future growth.
Each month, investors and economists turn to the ISM Report on Business, compiled by the non-profit Institute for Supply Management, for clues on the health of the manufacturing sector. The ISM report compiles survey responses from purchasing managers across the U.S. for their input on prices paid for materials, production levels, new orders, inventory levels, employment, and more.
Report name: Manufacturing ISM Report On BusinessReleased by: Institute for Supply Management, a not-for-profit professional associationRelease date: The report is posted on ISM’s website on the first business day of every month (unless the NYSE is closed that day) Release time: 10 a.m. ET
Best trait: "Economists like this report because it provides insight in the state of manufacturing on a national level. It offers a broad message about what's happening in manufacturing on a broad scale," says Patrick O'Hare, chief market analyst at Briefing.com. This compares to a bevy of more localized manufacturing surveys that focus on one specific region, such as the Chicago Purchasing Managers Index, the Philadelphia Fed Report (or Business Outlook Survey), and the Empire State Manufacturing Survey.
Good tip: The ISM Index, also known as the purchasing manager's index (PMI), is released as a number and the dividing line between expansion and contraction in the manufacturing sector is 50. For example, the March PMI stood at 51.8%, which indicates expansion. In November 2015, the PMI posted a contraction reading of 48%.
One weakness: “It is a survey. It’s not hard data. Surveys are soft data based on sentiment. It essentially asks purchasing managers to give their opinions, and there could be recency biases in their responses; if they get called on a day they get a big order, they could be more optimistic,” O'Hare says.
(a) Tends to be ignored. (b) Depends on overall trading climate. (c) Don't miss this one.
Sensitivity to this report depends on the overall market and trading environment, O’Hare says. For instance, if the market had a big run and some of it was predicated on the hope that manufacturing was improving, the PMI could be market-moving depending on how much of a surprise factor the actual reading is relative to consensus.
Current read: Recent data has been encouraging for the manufacturing sector. The March PMI reading at 51.8% marked the first expansionary number after five consecutive months of readings under 50%. O'Hare called the March reading a "green shoot of optimism that the U.S. manufacturing sector could be poised for better activity in the second half."
Analyze, chart, and compare the performance of this exact report (and nearly 400,000 other economic data points) inside the thinkorswim platform.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade, the Institute for Supply Management, Briefing.com and any other third party mentioned are separate and unaffiliated, and are not responsible for one another's policies, services or content.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2020 TD Ameritrade.