Purchasing Manager's Index
It is a survey-based measure that asks the respondents about changes in their perception of key business variables as compared with the previous month.
It is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
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 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.
As the official data on industrial output, manufacturing and Gross Domestic Product (GDP) growth comes much later; PMI helps to make informed decisions at an earlier stage.
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
What is the Significance of PMI
Provides A Reliable Expectation of Economy
The PMI is becoming one of the most tracked indicators of business activity across the world.
It provides a reliable expectation of how an economy is doing as a whole and manufacturing in particular.
Indicator of Economic Activity
It is a good gauge of boom-and-bust cycles in the economy and closely watched by investors, business, traders and financial professionals besides economists.
PMI is also regarded as a leading indicator of economic activity since it is released at the beginning of every month.
It comes before the official data on industrial output, core sector manufacturing and GDP growth.
Helps in Decision Making
The PMI is used by central banks to set interest rates
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