Get our free app for a better experience

4.9
Install Now

Economy and Finance

Economy and Finance

Purchasing Managers' Index - Explained

11 Apr 2023 Zinkpot 216
Purchasing Managers' Index - Explained
  1. What is Purchasing Managers’ Index (PMI)?  It is an indicator of business activity, both in the manufacturing and services sector. It is a survey-based measure that asks respondents about changes in their perception of some key business variables from the month before.
  2. It is basically a monthly survey of the private sector companies.
  3. Derivation of PMI: The PMI is derived from a series of qualitative questions. Executives from a reasonably big sample, running into number of firms, are asked whether key indicators such as output, new orders, business expectations and employment was stronger than the month before and are asked to rate them.
  4. It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  5. Who generates PMI? There are 3 principal producers of PMI, namely:
    • Institute for Supply Management (ISM) - Established in 1915, headquartered in Arizona, USA.
    • Singapore Institute of Purchasing and Materials Management (SIPMM) - Established in 1972, located in Singapore.
    •  IHS Markit Group - Located in London. IHS was established in 1959, Markit merged with IHS in 2016
  6. How is PMI calculated? In India, the PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).
  7. Reading the PMI: The PMI is a number from 0 to 100. A print above 50 means expansion, while a score below that denotes contraction. A reading at 50 indicates no change.
  8. If PMI of the previous month is higher than the PMI of the current month, it represents that economy is contracted. But if the figure is higher than the previous months, than the economy is expanding at a faster rate.
  9. Advantages: The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth. It is, therefore, considered a good leading indicator of economic activity.
  10. Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output. Central banks of many countries also use the index to help make decisions on interest rates.
  11. The PMI also gives an indication of corporate earnings and is closely watched by the investors as well as the bond markets. A good reading enhances the attractiveness of any economy vis-a-vis another competing economy.
  12. For the suppliers, PMI is the estimation of the amount of future demand for the desired products of a particular company. It also allows the supplier to know how much inventory its customers have on hand and as a result, it can affect the production amount generated by its clients.
  13. The PMI can be used by a company in planning the annual budget, managing staffing levels and in forecasting cash flow.
  14. PMI India: IHS Markit produces the PMI for India. The IHS Markit India Manufacturing Purchasing Managers’ index measures the performance of India’s manufacturing sector. The index is derived after survey of 500 manufacturing companies.
  15. ​​​​​​​The S&P Global India Manufacturing PMI rose to a 3-month high of 56.4 in March 2023 from 55.3 in the previous month, topping markets forecasts of 55.0.

About author

zinkpot

Zinkpot

Ask Anything, Know Better

ASK YOUR QUESTION
अपना प्रश्न पूछें
What is PM Gareeb Kalyan Anna Yojana?
Prev Post
Pradhan Mantri Jeevan Jyoti Bima Yojana
Next Post
VIEW MORE
Join Whatsapp Group