- 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.
