ISM Non-Manufacturing Index measures the employment trends, prices and new orders in non-manufacturing industries. Even though non-manufacturing sectors account for majority of the economy, the ISM Non-Manufacturing Index has less of a market impact because its data tends to be more cyclical and predictable. Nevertheless, the index still provides insights into the business conditions in non-manufacturing industries which can impact output growth and inflationary pressures.
The ISM Non-Manufacturing Index is calculated based on a sample survey of purchasing and supply managers and it is weighted according to industry contribution to GDP. Sub-indices are also reported and they include business activity, new orders, supplier deliveries, employment, inventories, prices, order backlogs, new export orders, imports and inventory sentiment.
The ISM non-manufacturing sub-indices like business activity provide investors insights into the economic backdrop for various markets. Stock market prefers healthy economic growth as it translates to higher corporate profits. On the other hand, the bond markets favor less rapid growth and are extremely sensitive to inflationary pressure.
See also: ISM Manufacturing Index