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Merriam-Webster's word of the year is ism - and finance nerds know this is more than just some suffix

Dec 15, 2015, 19:18 IST

Merriam-Webster's word of the year is actually a suffix: ism.

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Merriam-Webster's editor-at-large Peter Sokolowski told the Associated Press that this choice was because 2015 was a "serious year."

Some of the most searched-for words on the dictionary maker's site this year included socialism, fascism, racism, feminism, communism, capitalism, and terrorism.

But for readers who closely follow economic data, the letters ism will also recall one of the year's most controversial and closely-followed economic data releases: the Institute for Supply Management's Purchasing Managers Index, more commonly know as ISM manufacturing.

All year this reading has been in focus as activity in the US manufacturing sector, particularly driven by a decline in oil-related activity and the strengthening of the US dollar, has slowed.

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And while the index hit highs of 53.5 - readings over 50 indicate expansion in activity while readings below indicate contraction - in both January and June, the index has been on a steady march lower through the summer.

In November, ISM's manufacturing index fell to a reading of 48.6 in November, the lowest since June 2009, leading economists and strategists to declare that US manufacturing is in recession.

Many were quick to note, however, that only about 12% of US economic output is related to manufacturing while the services sector accounts for around two-thirds of GDP. And ISM's non-manufacturing index, which measures activity in the services sector, has been near post-recession highs all year despite the manufacturing slowdown.

And this has sort of set up a pretty straightforward, two-sided debate that has driven a lot of the economic discussion over the last few months:

  • US manufacturing's recession doesn't matter because this only accounts for 12% of GDP.
  • US manufacturing's recession matters because contraction in any part of the US economy is bad news.

Here's the chart showing the split between the manufacturing and services sectors of the economy.

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And so just as ism is Merriam-Webster's word of the year, ISM might be the chart of the year.

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