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The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers’ Index (PMI) has reported a reading of 49.9. This figure falls below the forecasted 52.0, and it’s the first time the index has slipped under 50 in recent months, indicating a contraction in the non-manufacturing sector.
The ISM Non-Manufacturing PMI is a composite index, calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is based on the diffusion indexes for four indicators with equal weights: Business Activity, New Orders, Employment, and Supplier Deliveries, all seasonally adjusted. A reading above 50 percent suggests the non-manufacturing sector is generally expanding, and below 50 percent indicates contraction.
The latest reading of 49.9 not only falls short of the predicted 52.0, but it also shows a decline from the previous reading of 51.6. This drop indicates a slowdown in the non-manufacturing sector, which could potentially have a negative impact on the overall economy.
The ISM Non-Manufacturing PMI report is compiled from monthly replies to questions asked of more than 370 purchasing and supply executives in over 62 different industries. These industries represent nine divisions from the Standard Industrial Classification (SIC) categories, and their contribution to the Gross Domestic Product (GDP) is also taken into account.
This lower than expected reading is generally considered bearish for the USD. It shows a contraction in the non-manufacturing sector, which could lead to a potential slowdown in the overall economy. This could also have implications for the Federal Reserve’s monetary policy decisions in the coming months.
Despite the contraction indicated by the latest PMI reading, it’s important to note that this is just one indicator of economic health. Other factors, such as employment rates, inflation, and GDP growth, also play a significant role in the overall economic picture. Nonetheless, the dip in the ISM Non-Manufacturing PMI is a development that will be closely watched by economists and investors alike.
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