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.

Source:TH