First off, this is the Institute for Supply Chain Management’s survey of hundreds of manufacturing companies, which indicate to the ISM what levels of business activity they have been experiencing.
The companies are known as “purchasing managers” because they purchase materials and other goods needed to manufacture the final product.
So when the ISM conducts its monthly survey and sees what levels of purchasing these companies have completed, it publishes a report that gives a score. A score above 50 indicates year-over-year growth in activity. Anything less than 50 indicates a decrease.
So when the reading beats expectations, this is an indicator that demand for goods is stronger than expected. Maybe corporate revenues will beat expectations. Depending on how the stock market is priced, a manufacturing beat can lift stocks. Tuesday September 1, the 10 am ISM manufacturing index showed a reading for July of 56, against expectations of 54.9. Industrial and materials stocks were down at the market open at 9:30, before rising after 10.
It’s important to remember for now that companies were gearing up for strong demand in July. But the August reading may look worse. Fiscal stimulus, in response to the layoffs caused by the pandemic was propping up consumer spend. More of that stimulus is needed and companies do not know if Congress will act swiftly enough or with a high enough dollar figure.