An Increase in Manufacturing Orders May Point to Future Economic Growth
The Institute of Supply Management (ISM) conducts a monthly survey that focuses on the manufacturing industry. The survey asks purchasing and supply managers from over 400 manufacturing companies and 20 different industries (i.e., the individuals who manage their firm’s supply chains) about their business and operations. Survey questions ask about new orders, production levels, employment, inventory, and prices. Investors and economists follow the survey closely because it can provide context about broader economic conditions.
The survey question about new orders asks if orders increased or decreased compared to the prior month. Readings above 50 indicate orders increased, while readings below 50 indicate orders decreased. This index is important because purchasing decisions must be made in advance to meet future manufacturing needs. If orders rise and a company expects to increase production, it must buy the required raw materials and other manufacturing inputs months ahead. As a result, rising orders are viewed as positive for the economy.
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