ISM Manufacturing Index

The single most-emphasized leading indicator in Recession Proof. The book calls it “a critical leading indicator of U.S. manufacturing activity and total GDP growth,” and goes further: “The ISM Manufacturing Index is the most important indicator out there, by far. It is everything. If you watch nothing else, watch that.” The author advises setting up a Google Alert for each release.

Its predictive rule of thumb, per the book: declines below 50 are a good leading indicator of U.S. recession, and declines below 40 are an almost-guarantee that a recession is already underway. The book contrasts it favorably with GDP — which it dismisses as “Zeus on high,” too backward-looking and too heavily revised (published almost six months after the fact) to be useful in real time. The ISM Index, by contrast, is forward-looking, which is exactly what makes it the book’s headline number for anticipating a downturn.

Context: The ISM Manufacturing PMI (Purchasing Managers’ Index), published monthly by the Institute for Supply Management, surveys manufacturing purchasing managers; a reading above 50 signals expansion and below 50 contraction, and it is a widely watched leading economic indicator.

Where this appears

• Recession Proof — named the single most important leading indicator (“it is everything”); the 50/40 thresholds and its advantage over backward-looking GDP.