PMI Playbook — Buys & Sells
The ISM Report On Business is one of the highest-signal macro releases most people never read. What this month’s numbers say, which sectors that favours, and where to read the full report yourself — free.
The buys and sells
From the August report, released 1 September — manufacturing 54.6, down a point but an eighth straight month of expansion, with 15 of 18 industries still growing. The tilts below come from the industry rankings inside the report, not from the headline. Research starters, not advice.
- Materials primary metals #1 of 15
- Industrials elec. equipment #2 of 15
- Semiconductors computer/elec, orders #6
- Data-center / power capex theme
- Chemicals contracting, orders & jobs ▾
- Financials curve flat, NIM squeezed
- Long-duration bonds 10Y at 4.95%
- Rate-sensitive housing wood products contracting
- Real Estate contracting
- Defensives food & bev orders ▾
What the read means
Manufacturing at 54.6 is down a point from July but still the eighth consecutive month of expansion. ISM’s own translation: a 54.6 reading historically corresponds to real GDP growing at about 2.4% annualised, against 2.8% last month. The cycle is cooling, not turning.
Three things in the release matter more than the headline:
- New orders fell 3.0 points to 53.7. This is the forward-looking line and it dropped hardest of any sub-index. Still expanding, but the order book is filling more slowly than it was.
- Backlogs fell 3.2 to 51.8. Read alongside production holding at 58.3, that says firms are working through existing work faster than new work arrives — the opposite of July, when backlogs jumped and new orders led.
- Factory employment held above 50 at 51.2, down from 52.8. A second month of expansion after 33 below is the one genuinely encouraging line, and it is losing momentum rather than building it.
The awkward line is prices at 71.1 — unchanged from July, and a 23rd straight month of increases. Supplier deliveries slowed further to 59.3. Costs are not easing and have not eased for nearly two years — and combined with hot input prices, that shapes the tilt toward cyclicals that can pass those costs on rather than cyclicals generally.
The verdict
- Services accelerating hard. 55.4 from 54.1, with new orders at 60.9. The larger half of the economy sped up while manufacturing cooled.
- Production held at 58.3, still the strongest sub-index in the report and barely changed on the month.
- Customer inventories at 42.8. Still far too low. Stock levels this thin force restocking — demand you can see coming rather than demand you have to forecast.
- Breadth held. 15 of 18 industries still expanding, led by primary metals — the deceleration is in the rate, not the reach.
- The curve is flattening into this. 10Y−2Y at 0.39pp, down from 0.50 in late August, with the 10-year at 4.95%. A cooling goods cycle financed at rising long rates is a materially worse trade than one financed cheaply.
- Prices unchanged at 71.1, a 23rd straight month of increases, and supplier deliveries slowed further to 59.3. Slower deliveries flatter the headline PMI while describing a cost problem.
- Wood Products and Chemical Products are both contracting, and both sit on the declining-new-orders list. Chemicals is shedding employment too — the only industry failing all three tests alongside wood. Housing’s input has led every meaningful cycle turn in forty years, and it is not confirming this one.
- Momentum is fading, not the level. New orders −3.0, backlogs −3.2, employment −1.6. Every forward-looking line fell while the headline stayed above 50.
- The Fed, 16 September. Futures put roughly 65% on a single quarter-point hike. A second entering the strip does more damage to cyclicals than anything in this report.
- Whether the curve steepens again. Below 0.25pp it costs a further point in the regime model, and it is nine basis points away.
- Services employment at 47.8 — a second month contracting, even as services activity accelerated. Firms are growing without hiring.
- Prices paid rolling over. Falling input costs turn a demand recovery into a margin recovery, which is a different and better trade.
- Building permits, and Wood Products with them. If both turn up, the clearest hole in the cyclical case closes.
Names the framework points at
These follow mechanically from the sub-indexes above — each one is here because a specific number in the report says so, not because it looks good on a chart. They are screens to research, not positions. No entry prices, because the level you pay is your decision and the point of this list is the reasoning.
| Idea | Which number drives it | What kills the thesis |
|---|---|---|
| Machinery & electrical equipment CAT · ETN · PH |
Production held at 58.3, and Electrical Equipment ranks #2 of the 15 growing industries. These convert a backlog into revenue first. | Already weakening: backlogs fell 3.2 to 51.8. Under 50 and the order book is emptying faster than it refills. |
| Industrial distributors FAST · GWW |
Customer inventories 42.8, still far too low. Distributors are the most direct read on restocking — they sell the pick-and-shovel consumables first. | Customer inventories climbing back above 48; restocking already done. |
| Materials into restocking NUE · FCX · XLB |
Primary Metals ranks #1 of 15 on growth and #3 on new orders, with customer inventories at 42.8. Volume recovery reaches raw inputs before finished goods. | China demand disappointing, or the dollar strengthening hard. |
| Banks into a flattening curve XLF · JPM |
A buy on a steep curve in August. 10Y−2Y has gone 0.50pp to 0.39pp with the short end rising faster. Banks fund short and lend long; that spread is the margin, and it is compressing. | The curve re-steepening, or loan volume growing fast enough to offset a thinner spread. |
| Data-centre power capex ETN · PWR · VRT |
The one theme where the ISM cycle and the AI capex cycle point the same way. Grid connections are the bottleneck. | A hyperscaler cutting capex guidance. This is the theme’s single point of failure. |
| Long-duration Treasuries TLT · ZROZ |
A 54.6 PMI implying 2.4% real GDP, with prices paid stuck at 71.1, is not a backdrop that rallies 30-year bonds. | Payrolls missing badly — growth scare bids duration hard and fast. |
| Bond-proxy defensives XLU · XLP |
Food, Beverage & Tobacco is the weakest of the 15 growing industries and sits on both the falling-new-orders and falling-employment lists. The yield also competes with a 4.95% ten-year. | Growth cracking properly — defensives are the right hedge if deceleration becomes contraction. |
| Rate-sensitive housing XHB · DHI · VNQ |
Wood Products is contracting outright and on the falling-new-orders list. Permits trending down, mortgage rates following a 4.95% long end higher. | Permits turning up, or a genuine dovish shift at the long end. |
Read it yourself — it’s free
You don’t need a terminal or a subscription for any of this. The ISM Report On Business is published free, in full, and most people never look at it. Two places to find it:
ismworld.org — the month is the last part of the address, so you can jump to any month by changing one word:
ismworld.org/…/ism-pmi-reports/pmi/august/
This is the one to read. It carries all 18 industries ranked in order and the verbatim comments from the purchasing managers themselves — the two things that turn a headline number into an actual view, and the two things every news summary throws away.
PR Newswire — published free the moment it’s released: first business day of the month for manufacturing, third for services.
Identical headline and sub-index figures, plain text, no sign-up. If you only want the numbers, this is quicker.
What to do with it. Read the manager comments first. Sixty seconds of people describing their own order books tells you more than the headline number does — you’ll see tariffs, shortages and hiring freezes in plain language weeks before they show up in official data. Then check whether the sub-indexes agree with each other: production and new orders rising together is a real expansion, production rising while new orders fall is a company working through a backlog it hasn’t replaced.
If you want a second opinion on the interpretation, TD Economics and PNC both publish free same-day notes and will flag anything odd in the seasonal adjustment before you build a view on it.
Sources
- ISM — August 2026 Manufacturing PMI Report On Business (headline, sub-indexes, industry rankings)
- ISM — August 2026 Services PMI Report On Business
- Federal Reserve H.15 — Selected Interest Rates (10-year yield, curve)
Not investment advice. The tilts are framework-generated research starters. Sources: July 2026 ISM Manufacturing Report On Business via PR Newswire; TD Economics; PNC Economics Research.