Purchasing Managers’ Index (PMI)

Overview

The Purchasing Managers’ Index (PMI) is a vital economic indicator derived from surveys of purchasing managers in the manufacturing and services sectors. It offers a timely snapshot of business conditions, acting as a leading indicator for economic health.

Key Concepts

The PMI is a composite index calculated from five main components:

• New Orders
• Production/Output
• Employment
• Supplier Deliveries
• Inventories

A reading above 50 indicates expansion in the sector, while a reading below 50 suggests contraction. A reading of exactly 50 signifies no change.

Deep Dive

The PMI survey data is weighted to create a single diffusion index. Each component is analyzed for its contribution to the overall economic picture. Expansion signals positive economic momentum, while contraction requires closer examination of underlying factors.

Applications

Economists, investors, and policymakers use the PMI to:

• Gauge the current state of the economy.
• Forecast future economic trends.
• Make informed investment and policy decisions.

It’s a closely watched indicator for its forward-looking nature.

Challenges & Misconceptions

While influential, the PMI is based on survey responses and can be subject to revision. It’s important to consider it alongside other economic data. A single data point should not be the sole basis for major economic conclusions.

FAQs

What does a PMI of 50 mean?

A PMI of 50 means the sector is neither expanding nor contracting; it’s stable.

Who publishes the PMI?

In the US, the ISM (Institute for Supply Management) publishes the manufacturing and services PMIs. Other organizations publish PMIs globally.