WHAT IS THE PMI? (PURCHASING MANAGERS' INDEX) What is the ISM Manufacturing Index? simecurkovic.com

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Updated explanation of ISM MFG PMI, March 2023:
Explanation on the ISM PMI mfg. index (future supply chain managers - your future boss will read stuff like this and it is all over the news)
Students:
Note: make sure you understand how to interpret the ISM MFG index (also called the PMI – Purchasing Managers’ Index). For example, if it is above 50, what does that mean? If it is below 50, what does that mean?

Hot off the presses, March 2023:

(Tempe, Arizona) — Economic activity in the manufacturing sector contracted (shrunk) in March for the fifth consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.
“The March Manufacturing PMI registered 46.3%.
IMPORTANT: Any number above 50 means mfg expanded from the previous month (they made more stuff). Any number under 50 means they made less stuff than the previous month. It has been under 50 for 5 months in a row (not good).
UP UNTIL 5 MONTHS AGO - This figure indicated expansion in the overall economy for 29 months in a row after contraction in 2020 - March, April, and May (covid). Covid shrunk the U.S. economy for only 3 months! Why did Washington pump $6T of stimulus into the economy?

Note, before the covid contraction in 2020 March, April, and May, the U.S. economy grew "131" consecutive months!!!

Did you catch that above? Pre-covid, the U.S. economy grew 131 months in a row! Note, pre-great recession, in 2008, the U.S. economy grew every month 1991-2007 (for the most part). The U.S. is a job creation machine! In fact, all indications are that the U.S. might be the only economy that was poised for a growth surge in 2021 through 2022 (with the exception of China). How do we keep doing it?! SCM? Note, the U.S. economy grew almost 10% in 2021, astronomical growth (too much).

If the ISM PMI MFG Index is above 50 for the month, then that simply means American mfg output expanded compared to the previous month. That is good because if it keeps being above 50 every month that means we are cranking out more and more stuff and that means jobs will be created.

So, covid hit us. What happened? In March, April, and May 2020, the PMI was under 50 (and it has been again the last 5 months). But, for June 2020, the PMI was above 50! If that number stays above 50 moving forward each month, that might mean the worst is behind us. Well, it has been above 50 since June 2020 (until the last 5 months). The Federal Reserve Board has been raising interest rates to slow down the economy to combat inflation, and it looks like it might actually be working.

Why does this ISM MFG index (the PMI) matter to the government and us? Answer: If MFG keeps shrinking month to month, our overall economy will start to shrink (eventually that means recession). You do not want to be graduating during a recession (though you will still be fine). Note, before manufacturing started shrinking 3 years ago during the covid shutdown (PMI under 50), the PMI was above 50 for the better part of 3 years (MFG was increasing).

OK, let's rehash this a bit...

Each month the Institute of Supply Management calculates this thing called the ISM Mfg. Index (also called PMI).

If an employer asked you what this meant or what the number meant, could you answer that interview question?

The U.S. government takes this calculation very seriously, but almost no one knows what it is. I was asked to explain it to the local community back in May of 2012. Make sure you know how to interpret this number and what the current data says about our economy.
https://www.mlive.com/opinion/kalamaz...

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So where are we at now? Rehash...

(Tempe, Arizona) — Economic activity in the manufacturing sector contracted (shrunk) in March for the fifth consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

“The March Manufacturing PMI registered 46.3%. Remember- The ISM PMI Mfg Index has been above 50 for 29 straight months...until the last 5 months. That means they were cranking out more stuff, so what does that mean? Answer: they are hiring more people. You need more people eventually if you keep growing. Jobs! FYI: U.S. unemployment is 3.7% (near historic lows). Unemployment for people with college degrees is 1.9%. However, with mfg now cranking out less stuff we should see mfg creating fewer jobs. Well, unemployment is still at 3.7%. BUT, the number of unfilled open jobs in America has dropped from 11 million to 9.99 milliion.

In my opinion, if the ISM PMI gets back to be above 50, then we will avoid a recession, especially a LABOR recession. Remember, 1 factory job creates another 10-20 jobs for everywhere else.