employment, or other indicators are rising or falling, and it forms an
index from these data. A reading of 50 means that half the managers re-
port rising activity and half report falling activity. A reading of 52 or 53
is the sign of a normally expanding economy. A reading of 60 represents
a strong economy in which three-fifths of the managers report growth. A
reading below 50 represents a contracting manufacturing sector, and a
reading below 40 is almost always a sign of recession. Two days later, on
the third business day of the month, the ISM publishes a similar index
for the service sector of the economy.
There are other releases of very timely data reports on manufactur-
ing activity. The Chicago Purchasing Managers report comes out on the
last business day of the month, the day before the national PMI report.
The Chicago area is well diversified in manufacturing, so about two-
thirds of the time the Chicago index will move in the same direction as
the national index.
And if you want an even earlier reading on the economy, there are
the consumer sentiment indicators: one from the University of Michigan
and another from the Conference Board, a business trade association.
These surveys query consumers about their current financial situation
and their expectations of the future. The Conference Board survey, re-
leased on the last Tuesday of the month, is considered a good early indi-
cator of consumer spending. For many years, the University of Michigan
monthly index was not published until after the Conference Board re-
lease, but pressure for early data reports has persuaded the university to
release a preliminary report before the Conference Board.
INFLATION REPORTS
Although the employment report forms the capstone of the news about
economic growth, the market knows that the Federal Reserve is equally
if not more interested in the inflation data. That’s because inflation is the
primary variable that the central bank can control in the long run. Some
of the earliest signals of inflationary pressures arrive with the midmonth
inflation statistics.
The first monthly inflation release is the producer price index(PPI),
which was known before 1978 as the “wholesale price index.” The PPI,
first published in 1902, is one of the oldest continuous series of statistical
data published by the government.
The PPI measures the prices received by producers for goods sold at
the wholesale level, the stage before the goods are resold to the public.
About one-quarter of the PPI comes from the price of capital goods sold
244 PART 3 How the Economic Environment Impacts Stocks