What is Purchasing Managers Index

Published by Sharekhan Education | August 13, 2020

What is Purchasing Managers Index?

The Purchasing managers index (PMI) is an economic indicator which indicates the health of the economy. The PMI indicator is based on survey-based diffusion measure provided by Markit, by compiling responses of purchasing managers (executives) of 400 companies every month. The executives are surveyed for their perception on change in key business variables.

There are two PMI indices i.e. Manufacturing PMI and Services PMI.

The manufacturing PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%)

The services PMI is a diffusion index calculated from a question that asks for changes in the volume of business activity compared with one month previously.

About PMI:

The aggregate final measure is a seasonally adjusted number on the scale of 0-100. A value above 50 indicates economic expansion, below 50 indicates contraction. A value nearing or below 42 indicates a start of a recession. Investors must grasp PMI’s month-on-month changes to gauge economic growth or decline. PMI data is released at the start of every month, ahead of official release of GDP or IIP data. It can help the central bank to take decisions on the monetary policy.

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