ISM Non-Manufacturing Index 2025: Key Guide to U.S. Services Sector Health

The American economy is like a huge machine with many different parts. For people who invest money, study the economy, and run companies, understanding this complex system requires reliable and up-to-date information. One of the most important pieces of information is the ISM Non-Manufacturing Index. This report is officially called the Services PMI, and it comes out every month to show how healthy the U.S. services sector is. The services sector makes up most of the country's economic activity. Learning about the ISM non-manufacturing report isn't just for school - it's essential for making smart decisions about money, business planning, and predicting what will happen to the economy. This indicator affects stock markets, shows changes in business cycles, and gives us a real-time look at how the U.S. economy is doing.

Understanding PMI Basics

The ISM Non-Manufacturing Index is basically a Purchasing Managers' Index (PMI). A PMI is a survey that measures how business conditions are changing. The Institute for Supply Management (ISM) asks hundreds of purchasing and supply managers from many different service industries across the country to answer questions. They compare how their business is doing this month compared to last month.

The survey results are put together into something called a diffusion index. For each part of the survey, they add the percentage of people who said things got better to half the percentage of those who said things stayed the same. A number above 50.0 means the services sector is growing. A number below 50.0 means it's shrinking. A reading of exactly 50.0 means there's no change. The farther the number is from 50, the faster things are changing, which shows both the direction and speed of change.

From Non-Manufacturing to Services

For many years, this report was called the ISM Non-Manufacturing NMI (Non-Manufacturing Index). In 2020, ISM officially changed the name to Services PMI. They made this change to better describe the industries it covers and to match global PMI standards, where "Services" is the common term. The industries covered include finance, insurance, healthcare, retail stores, and professional services.

Even though the name changed, the way they calculate everything and the historical data stay the same. The survey and its parts haven't changed. Because it has such a long history, many experienced analysts, financial websites, and older reports still call it by its original name, ISM non-manufacturing. So it's important to understand both names for complete economic analysis. Having continuous data allows for uninterrupted long-term trend analysis, which is important for identifying repeating patterns.

Key Components Breakdown

The main ISM Services PMI number is made up of four equally important sub-indexes. Each one gives a unique view of how healthy the services sector is.

• Business Activity: This part is similar to the Production index in the manufacturing report. It measures how much business activity is changing. A rising index means service providers are busier and producing more. It directly measures how busy companies are right now.

• New Orders: This is probably the most important forward-looking part. The New Orders Index tracks how new orders received by service companies are changing. An increase in new orders suggests that business will likely stay strong or get stronger in the coming months. A big drop can be an early warning sign of a future slowdown.

• Employment: This index measures how employment levels in the services sector are changing. A reading above 50 suggests service companies are hiring more people than they're letting go, showing they're optimistic about future business and contributing to the overall job market picture. It often matches up with national employment reports from the Bureau of Labor Statistics.

• Supplier Deliveries: This index is unique in how we interpret it. It tracks how fast suppliers deliver to service organizations. Slower delivery times result in a higher index reading. While slower deliveries can signal supply chain problems, in a PMI context, they're usually seen as a sign of a strengthening economy where rising demand is greater than supply capacity. On the other hand, faster deliveries (a lower index reading) can indicate weakening demand.

Interpreting the Data

Understanding the ISM non-manufacturing report goes beyond just the main number. A reading of 55.0, for example, clearly shows expansion. However, if last month's reading was 58.0, the new data shows that growth is slowing down. This detail is critical for market participants. The direction and speed of change matter as much as the actual level.

Deeper analysis requires looking at the sub-indexes. A strong main number driven mostly by slower Supplier Deliveries and rising Prices, while New Orders and Employment are weakening, paints a much less positive picture - one of potential stagflation. On the other hand, a main number supported by strong growth in New Orders and Business Activity signals healthy, sustainable expansion.

The full report also includes several other valuable sub-indexes that aren't part of the main calculation but provide important context. These include:

• Prices: Tracks the prices paid by service organizations for materials and services. It's a closely watched inflation measure.
• Backlog of Orders: Measures whether the volume of orders yet to be filled is growing or shrinking.
• New Export Orders: Tracks new orders received from foreign customers.
• Imports: Measures how materials and services imported are changing.
• Inventory Sentiment: Measures whether executives believe their current inventories are too high or too low.

Charting Historical Trends

Looking at ISM non-manufacturing data over time shows its power in tracking the U.S. business cycle. The index provides clear signals during major economic shifts.

The sharp V-shaped recovery in the ISM non-manufacturing index following the COVID-19 shock in 2020 was an early indicator of the broader economic comeback. It showed the strength of the services sector and its ability to adapt. Similarly, its deep dive below 40 during the 2008 financial crisis was a clear and timely signal of how severe the recession was.

Impact on Financial Markets

The monthly release of the ISM non-manufacturing report is a market-moving event. Its timing - released on the third business day of the month for the previous month - makes it one of the first comprehensive pieces of data available for that period.

• Stock Markets: A stronger-than-expected report is often good for stocks. It suggests higher corporate activity, stronger consumer demand, and potentially better earnings. However, an extremely high reading can sometimes worry markets with fears that the Federal Reserve will raise interest rates to fight inflation, which could slow future growth.

• Bond Markets: The bond market is highly sensitive to ISM non-manufacturing data, particularly the Prices and Employment parts. A strong report, especially with a high Prices index, typically causes bond prices to fall and yields to rise. This reflects expectations of stronger economic growth and higher inflation, which reduces the value of fixed-income payments and increases the likelihood of Fed tightening.

• Currency Markets: For foreign exchange traders, a strong ISM non-manufacturing index generally strengthens the U.S. Dollar. It signals a healthy U.S. economy compared to other countries, attracting foreign investment and increasing demand for the dollar.

Why It Matters More

While manufacturing once dominated the American economy, a major shift over the past several decades has made services the clear engine of growth. The services sector now accounts for roughly 80% of U.S. private-sector GDP and a similar percentage of employment. Industries like technology, healthcare, finance, and professional services are the main drivers of economic expansion and job creation.

Because of this dominance, the ISM non-manufacturing index is arguably a more important measure of overall economic health than its manufacturing counterpart. While the ISM Manufacturing PMI provides vital information about the goods-producing sector, its scope is much smaller. The services report captures a much larger and more representative slice of the modern U.S. economy, making it an essential tool for the Federal Reserve, the White House, and Wall Street.

The Report on Business

The main numbers and sub-indexes are just part of the story. The full ISM "Report on Business®" contains a wealth of qualitative information in the form of anonymous comments from survey respondents. These quotes provide on-the-ground color and context that numbers alone cannot capture.

A purchasing manager in the hotel and restaurant industry might comment on booking trends and labor shortages. A supply executive in healthcare might discuss the rising cost of medical supplies. These firsthand accounts are invaluable for understanding the real-world dynamics behind the numbers, revealing specific bottlenecks, emerging trends, and the general sentiment of business leaders. For the latest official report, we encourage readers to visit the Institute for Supply Management (ISM) website.

Manufacturing vs. Non-Manufacturing

Comparing the ISM Manufacturing and ISM Non-Manufacturing (Services) PMIs can provide powerful insights. Often, they move together, reflecting broad economic trends. However, there are times when they go in different directions, signaling a shift in the economy's structure or a sector-specific shock.

For example, during the trade wars of 2018-2019, the Manufacturing PMI weakened significantly due to tariffs and global uncertainty, while the ISM non-manufacturing index remained relatively strong, supported by domestic consumers. This difference highlighted the strength of the U.S. services economy in the face of global trade problems.

The two reports also have slightly different components. The manufacturing survey includes a "Production" index, while the services report uses "Business Activity." Manufacturing has an "Inventories" index, while services has an "Inventory Sentiment" index, reflecting the different nature of holding physical goods versus managing service capacity. Looking at both reports together provides a complete view of the entire private-sector economy.

Practical Business Applications

Beyond financial markets, businesses can use ISM non-manufacturing data for tactical and strategic advantage.

• Supply Chain and Procurement: The Supplier Deliveries and Prices indexes are critical inputs for supply chain managers. A rising Prices index may prompt a company to lock in prices with suppliers, while longer delivery times (higher Supplier Deliveries index) might signal a need to increase safety stock or find alternative sources.

• Strategic and Financial Planning: The New Orders and Business Activity trends are essential for forecasting future demand. A company can use this data to inform decisions on capital expenditures, expansion plans, and budgeting. A sustained uptrend in the indexes might justify new investments, while a downtrend could signal a need for caution.

• Human Resources: The Employment index provides a measure of labor market conditions within the services sector. A consistently high reading suggests a tight labor market, meaning companies may need to offer more competitive wages and benefits to attract and keep talent.

Limitations and Criticisms

No single indicator is perfect, and the ISM non-manufacturing index has its limitations. It's important to be aware of them for a balanced analysis.

• Survey-Based: The index is based on sentiment and perceptions, not "hard" transactional data like retail sales or industrial production figures. This can introduce some subjectivity.
• Volatility: As a monthly survey, it can be volatile and subject to short-term noise. Analysts typically look at three-month or six-month moving averages to smooth out the data and identify the underlying trend.
• Excludes Government: The survey covers the private non-manufacturing sector and does not include government activity, which is a significant part of the overall economy.

Despite these limitations, its timeliness, comprehensive industry coverage, and proven track record as a leading indicator make the ISM non-manufacturing report an essential tool.

A Vital Economic Barometer

The ISM Non-Manufacturing Index, now the Services PMI, is more than just a number released on the third business day of each month. It's a detailed, multi-faceted report that serves as a vital measure for the U.S. economy. By tracking key metrics like business activity, new orders, employment, and supplier deliveries, it provides a real-time assessment of the health and momentum of the dominant services sector.

For anyone seeking to understand the direction of the U.S. economy, anticipate market movements, or make smarter business decisions, mastering the interpretation of the ISM non-manufacturing report is essential. It offers a forward-looking perspective that lagging indicators cannot match, making it a cornerstone of modern economic and financial analysis. To deepen your understanding of economic indicators, we recommend resources from the Bureau of Economic Analysis (BEA).