What is the Purchasing Managers’ Index or PMI?
The Purchasing Managers’ Index (PMI) is an economic indicator reflecting the health of the manufacturing and services sectors through surveys of purchasing managers. It is a pivotal indicator in the financial and economic arenas.
The PMI is derived from monthly surveys of companies in the private sector. It offers investors and analysts a snapshot of economic trends, while policymakers consider the data when making national economic decisions. Due to its significance, many members of the public also follow the PMI with keen interest.
At its core, the Purchasing Managers’ Index is constructed from the following components, which are weighted and compiled into a single figure:
- New orders,
- inventory levels,
- supplier deliveries, and
- the employment environment.
Interpreting the Purchasing Managers’ Index
A reading of 50 or above means the sector is expanding – business conditions are improving.
Conversely, a reading below 50 signifies contraction – business conditions are deteriorating.
When the PMI hovers around the fifty mark, it means that there is no significant change in business conditions.
The Cambridge Dictionary has the following definition of the Purchasing Managers’ Index:
“A measurement of economic activity, based on how many purchasing managers in particular industries say that there has been an increase in activity in the past month. An index of more than 50% means that the economy is growing.”
The Purchasing Managers’ Index is more than just a set of numbers. It can help us predict economic trends ahead of other indicators, such as GDP (gross domestic product) reports.
For investors, CEOs, and policymakers, the index serves as an early warning system, offering clues about the country’s economic health, sector performance, and potential changes in how the market is operating.
Who publishes the Purchasing Managers’ Index?
In the United States, the Institute of Supply Management (ISM) releases the PMI. In the UK, the Chartered Institute of Procurement & Supply (CIPS) releases the data in partnership with IHS Markit. The IHS Markit Group (part of S&P Global) releases PMI data in many countries.
Understanding the Purchasing Managers’ Index can provide valuable insights into global economic trends. The index not only reflects the economic conditions of a specific country but also serves as a barometer for global economic health, given the interconnected nature of today’s economies.
Analysts often gather and analyze PMI data across different countries when gauging global economic momentum and identifying where best to invest (and not to invest).