Purchasing Managers Index

Purchasing Managers Index

Purchasing Managers Index

  • Purchasing Managers Index is a survey-based measure that asks the respondents about changes in their perception of 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 of 50 indicates no change.
  • If the 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.
    • IHS Markit is part of S&P Global.

Significance of PMI

  • The PMI is widely followed as an indicator of economic health because the manufacturing and services sector is a key driver of economic growth.
  • In general, a high PMI reading is seen as a positive sign for the economy, as it indicates that the manufacturing and services sectors are performing well and contributing to economic growth.
  • A low PMI reading is seen as a negative sign, as it indicates that the manufacturing and services sectors are struggling and may be dragging down overall economic performance.

Institution Responsible for Releasing PMI for India

  • PMI data for India is released by S&P Global – a global major in financial information and analytics.
  • Earlier PMI data is India was released by IHS Markit before its merger with S&P.
  • The Manufacturing PMI measures the performance of India’s manufacturing sector and is derived after a survey of approx. 500 manufacturing companies.

Methodology

  • The Purchasing Managers Index is derived from a series of qualitative questions. For manufacturing PMI, the questionnaire is sent to manufacturing companies.
  • The questions are related to 5 key variables.
  • The variables with their weights in the index are:
    • new orders (30%),
    • output (25%),
    • employment (20%),
    • suppliers’ delivery times (15%) and
    • stock of items purchased (10%).
  • The surveys are conducted on a monthly basis.

Reading of the PMI

  • A PMI number greater than 50 indicates expansion in business activity.
  • A number less than 50 shows a contraction.
  • The rate of expansion can also be judged by comparing the PMI with that of the previous month’s data.
  • If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
  • If it is lower than the previous month then it is growing at a lower rate.

Related Links:

Wholesale Price Index- WPICPI – Consumer Price Index
Index of Industrial Production or IIPCore Industries
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