PMI (Purchasing Managers' Index) surveys — the most-watched being the ISM manufacturing and services indexes — ask business managers whether activity (new orders, production, employment, prices) is rising or falling. The results are distilled into a single number where 50 is the dividing line: above 50 signals expansion, below 50 signals contraction.
Why the 50 line matters
The level tells you the state of the economy at a glance. A reading of 55 means the sector is growing; 45 means it's shrinking. The distance from 50 signals how strong the expansion or contraction is, and the direction of the trend (rising or falling month over month) signals momentum. It's a clean, forward-looking gauge because it's based on what managers are seeing right now.
Why markets care
PMIs are leading indicators — they often turn before the hard data (GDP, employment) confirms a shift. A surprise ISM can move stocks, bonds, and the dollar by changing the growth-and-rates narrative. The prices-paid component is watched closely as an early inflation tell that feeds into CPI expectations.
Above 50 the economy grows, below 50 it shrinks, and PMIs often see the turn before the hard data does.
The practical read
For a trader, ISM/PMI releases are scheduled catalysts on the calendar that can produce a sharp move, especially when they cross the 50 line or diverge from expectations. They set the macro backdrop for what moves the broad market — the slow tide beneath the daily tape.
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