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  • Writer's pictureByron Gangnes

Are you diffused?

Out today is the Institute for Supply Management's® Services Purchasing Managers Index (PMI®). A good opportunity to discuss diffusion indexes. A diffusion index reports the difference between positive and negative responses, in this case, the difference between those purchasing managers for businesses who are reporting expanding activity and those who are reporting contracting activity. The ISM® reports these both for the manufacturing sector and the services sector.

As the Institute for Supply Management® reports the index, values above 50 mean that more than half of individuals surveyed report expanding activity; readings below 50 indicate that more than half of respondents report contracting activity. How far away from 50 you are does not indicate how severely activity is expanding or contracting, but rather how widespread expansion or contraction is.

As you can see, the manufacturing PMI® has been contracting now for seven consecutive months, one indicator that the manufacturing part of the economy is already in recession. The service index has generally been above 50, although it dipped below 50 in December and was just barely above in May. By the PMI®, services sectors of the economy have been doing much better than manufacturing, but they still show signs of weakness.

The ISM® also reports various sub-indexes that give more detailed info. You can read more about it on their web site.

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