Saturday, 22 February 2014

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All ISM indexes are diffusion indexes, which measure the extent to which a change is dispersed or diffused in a group. For each of the 10 business activities, survey respondents are asked to indicate whether it has become better, worse, or has stayed the same, as compared to the previous month. The individual indexes for each business activity such as production, employment etc. are calculated by taking the percentage of respondents who report that the activity has improved (i.e. is higher or better) and adding it to one-half of the percentage who report unchanged activity.

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For example, if 40% of the respondents report that employment, say, has increased, while 35% report no change and 25% report a decrease, the diffusion index would be 57.5% (40% + [0.5 x 35%]).
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