ISM Manufacturing New Orders

The ISM Manufacturing New Orders Index is the monthly demand gauge inside the ISM Manufacturing PMI Report, where PMI means Purchasing Managers' Index. The Institute for Supply Management compiles it through its Manufacturing Business Survey of purchasing and supply executives reporting for US operations only. The panel covers 18 manufacturing industries grouped under the North American Industry Classification System (NAICS), based on each industry's share of GDP. It is a diffusion index of how widespread change is, not dollar values, so above 50% means growth and below means contraction.

The survey has run since 1931, except for a four-year break during World War II, and numeric index records begin in January 1948. It does not measure employment, output, or prices, which are separate indexes in the same report. Diffusion indexes behave as leading indicators, so markets read New Orders as an early signal of factory demand.

ISM sends the survey in the first part of each month for that month, and most respondents wait until late in the month for accuracy. Results are posted after 10:00 AM ET on the first business day of the next month, or the second business day in January. The date moves when the New York Stock Exchange (NYSE) is closed.

Each release also prints the composite PMI, the other indexes, and buying-policy lead times. It lists commodities up or down in price or in short supply, quotes respondents by industry, and names the industries growing or shrinking. Responses are raw data and are never changed, while seasonal factors see only small annual updates when warranted.

New Orders is one of 5 equal diffusion indexes that form the composite Manufacturing PMI.

• New Orders, 20%: change in new customer orders versus the previous month; the demand signal.
• Production, 20%: change in production volumes; the output signal.
• Employment, 20%: change in manufacturing employment levels.
• Supplier Deliveries, 20%: speed of supplier deliveries, inversed, so above 50% means slower deliveries.
• Inventories, 20%: change in raw-material inventory levels.

In April 2020, as reported on May 1, 2020, the Manufacturing PMI registered 41.5%, down 7.6 points from 49.1%. New Orders registered 27.1%, down 15.1 points from 42.2%. That was the lowest New Orders reading since December 2008 at 25.9%, and the largest one-month drop since April 1951. Only Food, Beverage and Tobacco Products expanded among the top 6 industries.

At 41.5%, the PMI sat below the April 2020 overall-economy breakpoint of 42.8%, ending 131 months of growth. That level matched a 0.4% annualized fall in GDP. Supplier Deliveries rose to 76%, up 11 points from 65%, limiting the PMI fall because shutdowns slowed deliveries, which supports the index by rule.

1. Responses: Each respondent reports whether new orders rose, held steady, or fell versus the previous month. ISM records the share giving each answer, plus the net of higher minus lower.
2. Diffusion formula: The raw index equals the higher share plus 0.5 times the same share. For example, 35% higher, 56% same, and 9% lower give 63.0 raw and +26 net.
3. Seasonal adjustment: New Orders is adjusted for repeating yearly effects from weather, holidays, and institutional schedules; the example read 64.6 after adjustment, 1.6 points higher. Adjusted coverage spans New Orders, Production, Employment, and Inventories, while Supplier Deliveries, Prices, Backlog, New Export Orders, Imports, and Customers' Inventories publish unadjusted.