Make More Strategic Decisions by Using the ISM® Report On Business®

The ISM^® Report On Business^®, released monthly by Institute for Supply Management^®, is considered a reliable real-time indicator of U.S. economic health. The report — which has separate manufacturing and non-manufacturing components — is used by policymakers to assist in decision-making. It affects currency markets as well as stock-market activity. It also has been used to estimate the annual rate of change of the gross domestic product (GDP).

For supply management practitioners, the Report On Business^® can be just as useful. Its macroeconomic indicators can help you make microeconomic decisions for your organization. You can look at its indexes to spot trends or future issues, risks or advantages. Plus, you can use it to see how your company is faring compared to the economy.

“We use the reports to assist our sales teams in communicating external economic and market conditions to our customers,” says a strategic sourcing manager at a Fortune 500 company.

The report contains numerous components, each of which can give you a look into how the economy is faring, says Kristina Cahill, Manager, ISM Research & Analytics. One is the composite indexes, the PMI^® for manufacturing and NMI^® for non-manufacturing. For either, an reading of greater than 50 percent indicates the sector is growing; lower than 50 indicates it’s contracting. There has been strong growth in manufacturing for 25 consecutive months, while non-manufacturing has enjoyed growth for 104 consecutive months.

Each sector is further divided into individual indexes — New Orders, Inventories, Supplier Deliveries, Prices, Employment, Backlog of Orders, New Export Orders and Imports —that are common to both PMI^® and NMI^®. Additional indexes are specific to each composite index: For example, the Manufacturing index includes Production and Customer Inventories indexes, while the Business Activity and Inventory Sentiment indexes are specific to the Non-Manufacturing index.

In each report, you’ll find other information you won’t want to miss, like the “Commodities Reported” information, Cahill notes. Each month, the report includes a list of commodities that are up in price, down in price and at a shortage. Some of these commodities are followed by a number in parentheses, which indicates the number of consecutive months that commodity has experienced the pricing trend or shortage. For example, according to the October PMI^® Commodities Up in Price, Aluminum (23) means that aluminum prices have increased for 23 straight months.

Commodities information can be used to gauge opportunities as well as potential risk, Cahill says. “For example, we’re currently seeing volatility with diesel fuel — it’s been both up and down in price. This could indicate negotiating opportunities for a company,” she says.

“Also, by keeping an eye of what commodities are dropping off and coming back on the Commodities Reported lists, you can get an idea of what you might need to worry about or consider,” Cahill says. “Labor, especially in construction, has been short for a long while. But a shortage of labor in transportation and trucking services just showed up.”

Next month: We’ll look at how to create a dashboard to track your company’s performance monthly. And in future months, we’ll delve into how to interpret individual indexes and relate them to your company’s situation.

Sue Doerfler is senior writer for Inside Supply Management^®.