PURCHASING MANAGERS INDEX (PMI)

About:

• What is a PMI? Purchasing Managers’ Index (PMI) is an indicator of business activity -- both in the manufacturing and services sectors.
  
  
• Methodology:
  • It is a survey-based measures that asks the respondents about changes in their perception of some key business variables (New Orders, Output, Employment, Stocks of Purchases etc.) from the month before.
    
    
  • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed. 
    
    
  • The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared to the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.
    
    
  • The PMI is usually released at the start of the month.
    
    
  
  
  
• Global scenario:
  • PMI was originally developed in 1948 by the US-based non-profit group namely Institute of Supply Management (ISM).
    
    
  • Now it is published in a variety of different places, depending on the company and country. For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics.
    
    
  
  
  
• Significance of PMI: Advantages offered by PMI data reflect deficiencies in official economic statistics, which include:
  • Infrequent publication: Many government data series, such as gross domestic product (GDP), are published only quarterly. The PMI is published monthly.
    
    
  • Delays in publication: Since, PMI surveys are among the first indicators of economic conditions published each month, it is considered a good leading indicator of economic activity.
    
    
  • Subject to revision after first publication: Official data even after getting published are frequently subject to substantial revision which makes it hard to confidently make business decisions based only on these statistics. PMI data, in contrast, are not revised after first publication.