Rate of Growth in the ISM Manufacturing PMI Dramatically Slows – Mish Talk

The ISM Report on Business for April shows a serious slowdown in the rate of growth except for prices.

Diffusion Index Notes

• The ISM is a diffusion index and one with a survivor bias. 
• A diffusion index measures direction but not magnitude. For example, a company adding 3 workers balances out a company firing 300 workers. The direction counts but the absolute number doesn’t.
• 50 is the cutoff between expansion and contraction. At 50 the measure shows an equal number of companies expanding and contracting for that measure.
• Survivor bias means that companies out of business, in trouble, or struggling don’t respond. 
• ISM says “A New Orders Index above 52.9 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).”