NAPM or PMI (National Association of Purchasing Managers Index)

Release Date: Usually released monthly, at about the middle of the new month
Release Time: At 10 a.m. EST
Coverage: Covers the data for the previous month
Released By: The Institute of Supply Managers


The US ISM Manufacturing Index was previously called the National Association of Purchasing Managers (NAPM) Index. This index is published by the Institute for Supply Management (ISM). The ISM Manufacturing Index is derived from the “Report on Business” survey published by the ISM. This survey is conducted by interviewing purchasing and supply executives across the US. The report is also called the Manufacturing ISM Report on Business. It is also referred to as the Purchasing Managers Index.

The NAPM survey looks at 18 different divisions of the U.S. manufacturing sector. A survey of about 400 purchasing managers is done. The 400 survey respondents receive their questionnaires in the first part of each month, and they are then asked to report the changes in 10 specific business activities when compared with the previous month. These 10 activities are:

  • new orders
  • production
  • employment
  • supplier deliveries
  • inventories
  • customers’ inventories
  • prices
  • backlog of orders
  • exports and imports.

For each business activity, survey respondents indicate whether there has been an increase, a decrease or whether activity has remained static in each sector from the previous month. The data is then used to compile a diffusion index, which is calculated by adding the percentage of respondents who report increased activity with half of the percentage who report unchanged activity.

The Index report also features a headline PMI Composite Index number which is based on five indicators: new orders, production, employment, supplier deliveries and inventories. Each indicator carries an equal weighting and are seasonally adjusted.

The NAPM report measures the condition of the manufacturing sector, and more generally the entire economy, by calculating for data about new orders, production, employment, deliveries, and inventory. It totalizes the surveys of over 250 companies within twenty-one industries covering all 50 states.

The Purchasing Managers Index (PMI), which is the most cited single feature of the report, presents summary statistics that indicates whether the manufacturing sector is expanding or contracting.

Time of Release

The NAPM Index report is released on a monthly basis, usually on the first business day of the month at 10 a.m. Eastern Standard Time and contains the data for the previous month. The data is released on the website of the Institute of Supply Managers and also on independent news feeds from Bloomberg and Thomas Reuters.

Interpreting the Data

The NAPM Index is considered one of the most reliable leading indicators available to assess the near-term direction of the U.S. economy. Also known as the PMI Composite Index, an index reading above 50% indicates that the manufacturing sector is generally expanding, while a reading below 50% indicates contraction. Apart from indicating that the manufacturing sector is expanding, the PMI Index also shows expansion or contraction of the overall U.S. economy, with a reading above 42.2% indicating GDP expansion, while a reading below 42.2% is an indication of GDP contraction.

As variations in this index can explain about 60 percent of the changes in U.S. gross domestic product, the PMI is sometimes used to draw broader conclusions about the U.S. economy as a whole. A rate over 50% indicates that manufacturing growth, while a rate below 50% means its recession. The NAPM index is also considered an early symptom of inflationary pressures.

The NAPM Index is a high impact news release which can be traded directly by looking at the actual figure as it compares with the consensus number. If the actual number is greater than the consensus number, this is a USD positive situation. If the actual number is less than consensus, this is USD negative.

Conclusion

The NAPM survey data on employment usually correlates well with the Bureau of Labor Statistics’ manufacturing employment report, and the NAPM survey data on industrial production also correlates with the Federal Reserve’s Industrial Production Index. As such, a study of the individual data contained in the NAPM Index report will usually serve as a leading indicator towards the future NFP and Industrial Production Index data that would be released days after this report.