Explaining U.S. Manufacturing PMI Survey Divergences

Business surveys sent conflicting signals on the health of the U.S. manufacturing sector in September. But dig deeper and the survey divergences can be explained, says Chris Williamson, Chief Business Economist, IHS Markit.

“Our analysis highlights how the IHS Markit PMI has outperformed the ISM survey in providing more accurate indications of actual manufacturing trends in recent years,” he says, “most likely due to differences in panel structure and questionnaire design.

The IHS Markit Manufacturing PMI hit a five-month high in September while the ISM survey’s PMI sank to its lowest level since 2009. Moreover, at 51.1. the former indicated a modest improvement in business conditions while the latter, at 47.8, indicated a deterioration.

Both surveys use diffusion indices whereby 50 denotes no change on the previous month. Both headline PMIs are also composite indicators derived from five individual survey questions relating to output, new orders, employment, inventories and suppliers’ delivery times.

Note however that ISM uses a straight average of its five components whereas IHS Markit uses a system such that forward-looking components carry a higher weight. These weights can therefore lead to divergences between the two PMIs.

However, even recalculated using the ISM weighting system, the IHS Markit PMI for September comes in at 50.6.
“The cause of the divergence must therefore lie elsewhere,” concludes Williamson.

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