18) Economic Indicators: Non-manufacturing Report

by · October 16, 2010

What It Is

Many reports that serve as indicators focus on the manufacturing industry. However, manufacturing is not the largest industry in the country; the service sector is. To bridge the gap, help businesses come up with a much better picture of the economy, and to assist them in making wiser decisions, the Institute for Supply Management, also called ISM, releases ISM Non-manufacturing Report on Business.

It is released every month, particularly on the third business day. It is dependent on the data that have been gathered in the previous month.

Basic Information

ISM is a non-profit organization. To date it has over 40,000 members who are engaged in supply management and purchasing. However, they are also representing the services sector, which are the biggest contributor in the country’s GDP or the real gross domestic product.

Before 1998, ISM started releasing the manufacturing industry’s report on business, along with the Purchasing Managers Index. Both have already become a staple in Wall Street and have been used by investors when it comes to making excellent investment decisions. Nevertheless, this newer ROB is fast gaining ground.

It has become very important to investors because it focuses more on the service industry, which is becoming to be the biggest, fastest-growing, and in-demand industries in the country and even in the entire world. The service industry is a major contributor to the U.S. economy.

The headline figure of this ROB is called the Business Activity Index. It is well-known for being a tight summary of the entire report and is usually the one that’s being released into the public.  The median for this index is pegged at 50. If the levels are more than 50, then it means that the services sectors are growing. The report also factors in the present economic situation in the present business cycle and the rate change.

How the Report Is Valuable

It is popular because it is timely and relevant. You don’t have to wait for several months after the release of PMI report to get this ROB. It comes right after. It has become a favorite among investors because it covers a lot of the industries where they put their money in. The report also breaks down each of this industry, and the Business Activity Index is very straightforward. It will directly tell you if the business scenario will be good or bad in the coming days.

The report also has its own sets of comments to make every portion of it easy to understand and to provide a clearer picture of the business condition. This doesn’t go against the manufacturing ROB. In fact, you can utilize both of them together.

Things to Watch Out For

Unlike other types of reports, the report doesn’t really provide accurate empirical data. Rather, the future business conditions are represented in a subjective format, using “higher,” “the same,” and “lower” as indicators. You also cannot generate a lot of historical data, which can be useful for any investor or business owner in the long term. It also doesn’t showcase diffusion-weighted summary.

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