ISM and PMI Surveys
Diffusion indices built from surveys of purchasing managers. They measure the breadth of change rather than its size, which is what the fifty level means.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- The headline is a diffusion index centred on 50.
- Above 50 means more respondents reported improvement than deterioration.
- It measures breadth, not magnitude.
- They are among the earliest monthly readings available.
- The subcomponents, particularly new orders, are watched separately.
MAD Academy Training Video · 0:44
Fifty Is the Whole Scale
Survey indices ask whether conditions improved, not by how much — so the level tells you direction and the change tells you momentum.
This lesson is part of a Stock Alerts + Tools plan.
What a diffusion index is
index = percent reporting better + 0.5 x percent reporting the same
- 50 means as many respondents improved as deteriorated
- the index does not measure how much anything changed
That construction has a consequence that is frequently misread. A reading of 52 means slightly more firms improved than deteriorated, and a reading of 58 means a much larger share did, not that the improvement was larger at each firm.
Because it measures breadth, the index says nothing about magnitude. A month in which every firm improved marginally and one in which every firm improved enormously produce the same reading.
Why they are watched
- They are published within days of month end, well before most official data.
- They are not revised in the way survey-based official statistics are.
- They exist for manufacturing and for services, and the two frequently diverge.
- Equivalent surveys exist for most major economies, which makes them comparable internationally.
Scroll the chart sideways to see all of it.
- Manufacturing
- Services
The subcomponents
| Component | Why it is watched |
|---|---|
| New orders | The most forward-looking element, and the one most watched |
| Employment | A monthly read on hiring intentions ahead of the official data |
| Prices paid | An early indication of input cost pressure |
| Supplier deliveries | Lengthening times indicate either strong demand or constrained supply |
| Backlogs | Work already committed, which supports future activity |
The fourth row is ambiguous by construction and is frequently misread. Longer delivery times raise the headline index and can reflect either strong demand or a supply disruption, which are opposite conditions.
The manufacturing weighting problem
Manufacturing is a small share of a service-dominated economy and the manufacturing survey receives most of the attention. Its readings are more cyclical and more volatile, which makes it a poor proxy for the whole economy even though it is the more quoted of the two.
This is the same mismatch the index construction article describes: what gets quoted and what is representative are different things, and the difference is a property of convention rather than of the data.
Reading the level against the direction
A diffusion index carries two pieces of information that are frequently collapsed into one: where it is relative to fifty, and which way it is moving.
| Level | Direction | What it describes |
|---|---|---|
| Above 50 | Rising | Expansion, broadening |
| Above 50 | Falling | Still expanding, and less broadly than before |
| Below 50 | Falling | Contraction, deepening |
| Below 50 | Rising | Still contracting, and less broadly. The usual first sign of a turn |
The fourth row is the one that matters most and reads worst in a headline. A reading of 47 that was 44 last month is an improvement described in coverage as continued contraction, and both descriptions are accurate.
This is the same distinction the economic calendar article draws between the level and the surprise. Markets price the change; commentary reports the level, and the two frequently point different ways.