Purchasing Manager’s Index (PMI)

Subject – Economy

Context – August manufacturing PMI shows recovery losing steam.

Concept –

It is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
The PMI is a number from 0 to 100.
A print above 50 means expansion, while a score below that denotes contraction.
A reading at 50 indicates no change.
If PMI of the previous month is higher than the PMI of the current month, it represents that the economy is contracting.
It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
PMI is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
- IIP covers the broader industrial sector compared to PMI.
However, PMI is more dynamic compared to a standard industrial production index.
Purchasing Manager’s Index (PMI) focuses mainly on the five major Survey Areas:
- Employment
- New orders
- Production
- Inventory levels
- Supplier deliveries