ISM Manufacturing PMI: A Glimpse Into the Health of the Economy

Once a month, the Institute of Supply Management—a private firm—gives us a glimpse into how well large manufacturers are doing. Traders love this information because manufacturing numbers can tell them a lot about how the economy is doing.

When the ISM Manufacturing PMI number is above 50, it indicates the manufacturing sector is expanding, which means the economy is growing and stocks will most likely increase in value.

When the ISM Manufacturing PMI number is below 50, it indicates the manufacturing sector is contracting, which means the economy is contracting and stocks will most likely decrease in value.

[VIDEO] Understanding the ISM Manufacturing PMI Number

Of course, there are certainly other factors you should be looking at when determining the health of the economy so don’t read news in a vacuum.

What is the ISM Manufacturing PMI Number?

The Institute of Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) number is compiled from a survey of purchasing managers. Purchasing managers are on the front lines of manufacturing and see first hand how businesses are performing.

When business is good, purchasing managers have to buy more raw materials to fulfill orders. When business is bad, purchasing managers have to buy fewer raw materials to fulfill orders.

You can see the most recent ISM Manufacturing PMI report here.

Manufacturing Stocks to Watch

Here are a few of the companies with broad economic reach you should keep an eye on:

– Caterpillar Inc. (CAT)
– Deere & Company (DE)