PURCHASING MANAGER’S INDEX

PURCHASING MANAGER’S INDEX

Subject: Economy

Context: India’s services sector activity expanded at a slower pace in December as growth in sales eased to a three-month low and staff hiring came to a halt amid weak business optimism, a PMI survey showed.

Concept:

• The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
• It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• The PMI is a number from 0 to 100.

PMI above 50 represents an expansion when compared to the previous month;

PMI under 50 represents a contraction, and

A reading at 50 indicates no change.

• If PMI of the previous month is higher than the PMI of the current month (as is the case mentioned above), it represents that the economy is contracting.
• The PMI is usually released at the start of every month.
• It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.