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ISM NMI and Stock Market Returns

Posted in Economic Indicators

Each month, the Institute for Supply Management (ISM) compiles results of a survey "sent to more than 375 purchasing executives working in the non-manufacturing industries across the country." Based on this survey, ISM computes the Non-Manufacturing Index (NMI), "a composite index based on the diffusion indexes for four...indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries." ISM releases NMI for a month on the third business day of the following month. Does the monthly level of NMI or the monthly change in NMI predict U.S. stock market returns? Using monthly seasonally adjusted NMI data during January 2008 through January 2016 from the Federal Reserve Bank of St. Louis and from press releases thereafter through December 2018, and contemporaneous monthly S&P 500 Index closes (132 months), we find that:

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