Each month, the Institute for Supply Management (ISM) surveys purchasing managers around the country about changes in inventories, orders, sales and employment. If there is no change from the previous month, the index reads 50. Anything greater than 50 is a positive. ISM publishes two composite indexes each month, one for manufacturing (PMI) and one for non-manufacturing (NMI), which represents more than 80% of the economy.
In January of this year, the non-manufacturing index squeaked into the positive zone with a 50.5 reading, followed by a 53 reading in February. In May, the NMI rose to 55.4, and a key component of that composite, the Business Activity Index, rose to 61, a level not seen since 2006. The indexes are calculated in such a way that they reflect the dispersal of either positive or negative activity throughout the economy, so a reading of 61 indicates that improvement is spreading ever wider through a variety of companies.
Employment is usually the last horse out of the gate when coming out of a recession and this time is no different. However, for the first time in 28 months, the Employment Index portion of the composite index broke into positive territory at 50.4.
This recession has a greater gravitational pull than the more recent ones at the beginning of this decade and the early nineties. Pulling against this recovery are home foreclosures, commercial real estate debt coming due, European sovereign debt problems, China’s monetary support of its own exports and a lack of lending to small businesses. But the rockets are firing.