Diffusion Index are surveys carried out by the Institute for Suply Management (ISM). In Europe is the Purchasing managers Index (PMI). As for the us, we can highlight the ISM manufacturing (Industrial Sector), and the ISM services (Service Sector).
ISM Manufacturing (Industrial Sector)
It is based on surveys conducted on more than 300 manufacturing companies by the ISM. ISM Manufacturing Index oversees employment, production, inventories, new orders and vendor deliveries.
Although the manufacturing sector represents a relatively small portion of the US gross domestic product, fluctuations in the production sector tend to cause most of the changes in GDP. An increase in the demand for manufactured products after a recessive phase, reflected by a greater number of the manufacturing ISM, suggests a positive change. On the contrary, a decline in manufacturing and production orders after a boom period suggests a slowdown in the Economy.
Its components reflect the sentiment of inflation and working conditions, two of the most important economic health indicators.
ISM Services (Services Sector)
Also known as non-manufacturing ISM, it gives us an early perspective on the activity and strength of the Services Sector. It consists of four components of equal weighting: business activity, new orders, employment and delivery of Suppliers. It is calculated by a survey of more than 300 companies in the Sectors: financial, insurance, real estate, communication and public services.
- If a result exceeds 50 it would indicate that it is in expansion, whereas below 50 would indicate a slowdown of the same.
- If worth 80 is that 80% of companies have increased their economic activity
It can be found in www.investing.com, since in the Web pages of those that develop them are fee payment systems.
It could be used to detect a Market Top in the event that ISM Services falls below 50 for more than 2 months.