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Definitions I

ISM Reports on Business

The Institute for Supply Management puts out two monthly “Reports on Business”, one in manufacturing and one in non-manufacturing (often referred to as “service sector”). Each report has several component indices, each one measuring the net fraction of companies surveyed for which some measure increased from the previous month, with 50 being the neutral value.

The Manufacturing ROB has components measuring month-to-month change in ten categories at 300 companies. Five of the components, new orders, production, employment, supplier deliveries and inventories, are seasonally adjusted and combined into the PMI (Purchasing Manager's Index). The PMI can explain about 60% of the annual variation in GDP.

The Non-manufacturing ROB has components measuring month-to-month change in another 10 categories at 375 companies. Beginning in Jan 2008, a composite NMI index has been calculated, based on the indices of Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Before Jan 2008 the “Business Activity” component was often quoted as a general indicator.

Both indices are widely-noted indicators of business conditions. For both indices changes of a few percentage points could easily be noise and should await confirmation in a longer-term trend.