U.S. ISM Manufacturing Purchasing Managers Index (PMI)
What makes the ISM PMI so crucial? Since the US has the greatest economy in the world and 400 industrial enterprises, this is one of the reasons.
On the first working day of every month, the ISM PMI is made public. The information includes findings from a survey of industrial enterprises about their previous-month business activity.
The PMI is a composite indicator made up of the following five areas:
- New Orders 30%
- Production 25%
- Employment 20%
- Supplier Deliveries 15%
- Inventories 10%.
This report is significant because it reflects the items purchased and sold in the economy and accounts for 20% of company contribution to US GDP. The data is reliable because it dates back to 1947, allowing for a historical stress test. ISM manufacturing data is 85% historically correlated with real GDP growth statistics, making it a very dependable source.
How do traders use the ISM PMI?
As traders, we are more interested in the general picture of the currency than in the specifics that are revealed in the planned announcements. The three most crucial variables we must take into account while interpreting this news are the direction of the ISM, the magnitude of the ISM from month to month, and the total composite number of the PMI. After analysing the ISM manufacturing PMI, we may calculate composite weighting scores to get a general sense of which way the economy is leaning.
In general, releases that exceed expectations and historical data indicate that manufacturers are more optimistic about future sales. Consequently, the demand for dollars has increased. However, measurements that begin to deviate from projections and prior data could demonstrate how there is less confidence and less economic growth. there will be less demand for dollars as a result.
Forex traders should always back their analysis with a variety of economic data sources. These are the real factors that determine economic strength and, consequently, currency value.