PMI (Purchasing Managers' Index) surveys — the most-watched being the ISM manufacturing and services indexes — ask business managers whether activity (new orders, production, employment, prices) is rising or falling. The results are distilled into a single number where 50 is the dividing line: above 50 signals expansion, below 50 signals contraction.
Why the 50 line matters
The level tells you the state of the economy at a glance. A reading of 55 means the sector is growing; 45 means it's shrinking. The distance from 50 signals how strong the expansion or contraction is, and the direction of the trend (rising or falling month over month) signals momentum. It's a clean, forward-looking gauge because it's based on what managers are seeing right now.
Why markets care
PMIs are leading indicators — they often turn before the hard data (GDP, employment) confirms a shift. A surprise ISM can move stocks, bonds, and the dollar by changing the growth-and-rates narrative. The prices-paid component is watched closely as an early inflation tell that feeds into CPI expectations.
Above 50 the economy grows, below 50 it shrinks — and PMIs often see the turn before the hard data does.
The practical read
For a trader, ISM/PMI releases are scheduled catalysts on the calendar that can produce a sharp move, especially when they cross the 50 line or diverge from expectations. They set the macro backdrop for what moves the broad market — the slow tide beneath the daily tape.