ISM Cycle Peaks

This analysis examines the frequency, average value, and duration of U.S. ISM cycle peaks.

What is the ISM manufacturing Cycle?

The ISM Manufacturing Purchasing Managers’ Index (PMI) serves as a vital barometer of the U.S. economy, reflecting the health and direction of the manufacturing sector. The Manufacturing sector is tied to the production of capital-intensive industries, which are highly sensitive to changes in demand, interest rates, and policy. Investors closely watch it because it is a leading indicator of economic momentum, often signaling turning points in growth or recession before broader data like GDP or employment.

One key focus for economists and investors is identifying cycle peaks—the highest PMI value before the index begins a subsequent decline and falls below the neutral threshold of 50. By analyzing historical data, we can uncover patterns and insights into how these peaks occur and what they mean for the broader economy.

What Are ISM Cycle Peaks?

Cycle peaks in the ISM Manufacturing PMI mark turning points in economic activity. These peaks occur at the highest point of economic output, just before the economic activity begins to contract. Understanding these peaks can provide insights into the broader economic cycle, helping analysts anticipate periods of economic growth and downturn.

Frequency of Cycle Peaks: How Often Do They Happen?

Historical Perspective:

Since 1948, the ISM Manufacturing PMI has recorded an average of 2 to 3 cycle peaks per decade.

Cycle Peaks are defined as the highest value followed by a subsequent decline below 50 (neutral).

Duration of Expansion

The duration from when the ISM Manufacturing PMI crosses above 50—indicating expansion in the manufacturing sector—to reaching its cycle peak is a critical indicator of how quickly growth phases unfold.

• Based on historical data, the average time from the PMI first crossing above 50 to reaching its peak is approximately 12 to 18 months.
• Duration can vary depending on the specific economic conditions. For example, periods of rapid economic recovery, such as post-recession rebounds, often see shorter durations.

Modern Perspective

From 2008 to 2024, the average duration from when the ISM Manufacturing PMI crossed above 50 to its subsequent peak was approximately 15 months. This period includes notable peaks such as:

• August 2018: PMI reached 60.8, about 14 months after crossing 50 in June 2017 during a strong economic expansion.
• March 2021: PMI hit 64.7, approximately 16 months after crossing back above 50 in November 2020, following the COVID-19-induced recession.

Average Cycle Peak Value: How High?

Historical Perspective:

The ISM Manufacturing PMI has averaged 52.9 over its entire history, with an all-time high of 77.5 in July 1950 during the post-war manufacturing boom. When focusing on peak values—the highest PMI readings before a decline—the average cycle peak tends to fall in the range of 60 to 65. This range reflects periods of robust manufacturing growth and expansion before the sector begins to cool.

Modern Perspective (since 2009)

The average cycle peak value during this modern era is approximately 62.8, slightly below the historical range but still indicative of strong manufacturing performance.

Anticipating Future Cycle Peaks: What Can We Expect?

Based on long-term trends, future peaks on the ISM Manufacturing PMI are likely to fall within the 60 to 65 range.

Influencing Factor

• Economic Policies: Federal Reserve decisions, fiscal policies, and trade agreements can significantly impact manufacturing activity.
• Global Events: Supply chain disruptions, geopolitical tensions, and pandemics can either accelerate or dampen manufacturing cycles.
• Market Dynamics: Shifts in consumer demand, technological innovation, and global competition also play a crucial role.

While the exact timing and value of the next cycle peak are uncertain, understanding historical patterns can help investors and analysts better anticipate changes in the economic landscape.

Why Do ISM Cycle Peaks Matter?

ISM cycle peaks are more than just data points—they are signals of economic turning points. Here’s why they’re important:

1. Economic Forecasting: Cycle peaks provide insights into the economy's position in the broader business cycle, helping policymakers and businesses plan accordingly.
2. Investment Decisions: For investors, cycle peaks can signal shifts in market sentiment and provide opportunities to adjust portfolios.
3. Strategic Planning: Businesses, particularly in the manufacturing sector, can use these insights to optimize production, manage inventory, and plan for changes in demand.

Key Takeaways

• Frequency: Historically, the ISM Manufacturing PMI has experienced 2 to 3 cycle peaks per decade.
• Duration: On average, it takes 12 to 18 months for the PMI to peak after first crossing above 50.
• Average Value: The average cycle peak value ranges from 60 to 65, with recent peaks averaging 62.8.
• Future Peaks: While difficult to predict precisely, historical patterns suggest that future peaks will likely fall within the established range of 60 to 65.

By understanding the dynamics of ISM cycle peaks, we can better navigate the complexities of the economic cycle, identify potential turning points, and make more informed investment decisions.

*Note: For the most up-to-date and precise insights, refer to the Institute for Supply Management’s official reports.