Purchasing Managers’ Index (PMI)

In News 

• Purchasing Managers’ Index (PMI) for the services sector dropped for a second successive month in December 2021 to 55.5. 

About Purchasing Managers’ Index (PMI)

• 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.
• 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.

• Purpose: 
  • To provide information about current and future business conditions to company decision-makers, analysts, and investors.
  • The index helps in determining whether the market conditions, as seen by purchasing managers, is expanding, contracting or staying the same

Source: TH