What are the ISM, PMI, and Philadelphia Fed indices?
Read the direction of the economy through corporate surveys. The 50 of the PMI and the 0 of the Philadelphia Index are based on different criteria.
Table of contents
Remember this first
First, 3 things to remember
- 1PMI is a survey-based indicator that summarizes corporate responses regarding changes.
- 2Look at manufacturing/services and new orders/employment/prices separately.
- 3The 50 threshold for PMI is not applied to the Philadelphia Fed Index.
50 is the threshold for expansion or contraction, not a growth rate
PMI stands for Purchasing Managers’ Index. It gauges the direction and degree of expansion by asking corporate managers whether their activities have increased, stayed the same, or decreased compared to the previous month. ISM releases separate reports for the US manufacturing and services sectors.
Typically, a reading above 50 is interpreted as expansion in the surveyed sector compared to the previous month, and below as contraction. 55 does not mean economic growth rate 5% or corporate revenue 55% increase. Hypothetically, if it rises from 48 to 49, it means the prevalence of contraction responses has eased, not that it has shifted to expansion.
Combinations under the headline
The composition of the composite indices for manufacturing and services is not the same. New orders provide clues about future demand, employment about workforce adjustments, and prices about the price changes perceived by companies. The directions of the composite index and the price index may differ.
Slower supplier deliveries can be due to strong demand, but also due to supply chain disruptions. Therefore, an increase in the delivery index should not always be interpreted as a favorable economic condition. Check what causes the survey opinions and figures explain.
The Philadelphia Fed uses 0 as the threshold
The Philadelphia Fed Manufacturing Business Outlook Survey is based on responses from manufacturing firms in its jurisdiction. As it is a diffusion index calculated by subtracting the percentage of negative responses from the percentage of positive responses, read the direction above or below 0.
Hypothetically, 20 does not mean production increased by 20%, but indicates a prevalence of responses reporting an increase. Do not read a single regional manufacturing survey as a definitive result representing the entire U.S. service sector. Distinguish between current activity and future outlook.
To the Nasdaq through both earnings and interest rate channels
If corporate orders recover, it can support expectations for demand in equipment, semiconductors, and software. On the other hand, if price pressures rise, expectations for interest rate cuts may weaken, which could weigh on the valuation multiples of growth stocks. This is a possible economic path and not a rule that is replicated identically with every announcement.
"Improved activity + stable prices" and "contracting activity + rising prices" contain different risks despite the same headline. By looking at Treasury yields and corporate earnings forecasts together, you can ask why the index and stock prices moved in opposite directions.
Different institutions report different numbers
ISM PMI and S&P Global PMI are different surveys. Because the survey targets, composition, and release timing differ, the values may diverge. Check which institution released the manufacturing indicator, even if they share the same name.
A single month's survey can be swayed by inventory adjustments, strikes, or weather. Compare the multi-month trend against actual production, consumption, and employment data. Do not use crossing a specific threshold as an automated trading signal.
You should not make such assumptions
“A Philadelphia index of 20 is below 50, indicating contraction.”
Read that index based on 0. Do not apply the baseline of the ISM PMI to other surveys.
Check what you have read.
- Did you verify if it is ISM or another PMI?
- Did you distinguish between manufacturing and services?
- Did you also look at prices, new orders, and employment?
- Is the threshold for that index 50 or 0?
Apply what you read to the actual screen
Try it on WAPE
Source and scope of verification
Reviewed · Version 1
- ISM PMI ReportsNew window
Institute for Supply Management · Verify 2026-10-20
Interpretation of manufacturing and service sector surveys and PMI indices - Manufacturing Business Outlook Survey: User GuideNew window
Federal Reserve Bank of Philadelphia · Verify 2026-10-20
Distinguishing between regional surveys, diffusion indices, the 0 threshold, and the magnitude of change - Monetary Policy: What Are Its Goals? How Does It Work?New window
Federal Reserve · Verify 2026-10-20
Transmission channels of monetary policy to borrowing costs, asset prices, exchange rates, consumption, and investment · The relationship between future policy expectations and long-term interest rates; this is not data for predicting the direction of specific indices
This is educational material for observation and information comprehension. Hypothetical examples do not represent actual stocks or performance and do not provide buy or sell recommendations.