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