Definition
The ISM Manufacturing PMI is a monthly indicator of U.S. economic activity derived from a survey of purchasing managers at over 300 manufacturing firms. Released on the first business day of each month at 10:00 a.m. EST, the ISM Manufacturing Report on Business provides crucial insights into the manufacturing sector.
Typically, a rising index suggests a bullish stock market due to expectations of higher corporate profits. Conversely, bond markets may decline as the ISM Manufacturing Index rises, given bonds' sensitivity to inflation.
How Do I Read PMI Data?
The ISM manufacturing index provides a number that indicates whether the manufacturing sector is growing or contracting. A PMI reading over 50 (or over 50%) means the sector is growing compared to the previous month, while a PMI reading under 50 (or under 50%) means the sector has contracted month-over-month.
Context-specific
Various factors influence each other in this dynamic. For instance, in a volatile equity market, a lower ISM PMI might suggest diminishing inflation, potentially prompting the Federal Reserve to consider rate cuts. The Fed's decisions on interest rate adjustments are highly responsive to such economic indicators. Consequently, a declining ISM PMI is often welcomed by market participants anticipating rate cuts, hoping for market improvement.
Understanding the ISM Manufacturing Index from multiple perspectives is crucial. By doing so, investors can better grasp economic trends and conditions, enabling more accurate market predictions.
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