ISM Index

The ISM Manufacturing Index is arguably the most significant economic data of all. This is a survey of purchasing managers in the manufacturing sector and is a barometer of business conditions in that sector, which comprises 15% of the economy. A reading above 50% typically implies that the manufacturing sector of the economy expanded during the month; a reading below that level suggests industrial contraction. Readings below 45% are normally required to be consistent with recession, however, because growth in service sector output can stabilize the overall economy when manufacturing weakness is only moderate. The ISM index is "the" key leading indicator of factory orders and industrial production, and is the reason why these figures have little effect on the market. The Federal Reserve is known to give the index great weight.

Market Effect: Strong
Indicator of Economic Conditions: Strongest!

ISM Orders

ISM New Orders is the biggest and most important component of the ISM Manufacturing Index. It reflects the level of new orders received by businesses and is an extremely strong indicator of future prospects in the sector and the economy overall. Its impact on the market is a considerable part of the overall index's effect (see above).

Business Inventories

Business Inventories are the most complete measure of inventory in the economy except for the GDP figures. The data is of mixed importance given that low inventory could be a sign that businesses are depleting inventories in expectation of a slow demand or, the opposite, demand is so strong that supply cannot keep up and inventories have been depleted as a result. The opposite also holds true for high inventory levels. The data should only be interpreted in the context of other economic data, such as the ISM index.

Market Effect: None
Indicator of Economic Conditions: Weak

Capital Goods Orders

Durable goods orders are notoriously volatile but the number of orders excluding transportation and defense (capital goods orders) is a key leading economic indicator, as it shows whether the level of business investment is rising or falling.

Market Effect: Moderate
Indicator of Economic Conditions: Strong