Purchasing Managers’ Index PMI


    In News

    • Inflation pressures dragged India’s manufacturing sector’s growth down to the lowest level in nine months, and dampened business confidence sentiment to a 27-month low in June, as per the S&P Global India Manufacturing Purchasing Managers’ Index (PMI).

    Purchasing Managers’ Index (PMI)

    • About:
      • It is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
      • It is an economic indicator, which is derived after monthly surveys of different companies.
    • Types: 
      • There are two types of PMI Manufacturing PMI and Services PMI.
        • A combined index is also made using both manufacturing PMI and services PMI.
    • Methodology: 
      • The PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers, based on company workforce size, based on contributions to GDP. 
      • Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.
        • IHS Markit is a London based global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
    • Calculation of PMI:
      • It is indicated by a number from 0 to 100.
      • A print above 50 means expansion while a score below 50 denotes contraction.
      • A reading at 50 indicates no change.
      • If the previous month PMI is higher than the current month PMI, it represents that the economy is contracting.
    • Importance: 
      • It provides a reliable expectation of how an economy is doing as a whole — and manufacturing in particular .
      • Central banks use the PMI to make decisions on interest rates. 
      • Besides influencing equity market movements, PMI releases also impact bond and currency markets. 
      • A good reading of PMI enhances the attractiveness of an economy vis-a-vis other competing economies. 
      • Suppliers can decide on prices depending on PMI movements.