About: Purchasing Manager Index (PMI)

About: Purchasing Manager Index (PMI)

  • The Nikkei India Manufacturing PMI, compiled by IHS Markit, is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies, on various factors that represent demand conditions.
    • Note: It is also sometime referred to as IHS Markit India Manufacturing PMI.
  • PMI measures activity at the purchasing or input stage. It is very different from industrial production which is indicative of actual production. For example, the Index of Industrial Production (IIP) measures output.
  • The PMI is constructed separately for manufacturing and services sector, but the manufacturing sector holds more importance.
  • PMI does not capture informal sector activity.

Significance:

  • The Index is considered as an indicator of the economic health and investor sentiment about the manufacturing sector.
  • PMI is also the earliest indicator of manufacturing activity and economic health, as the manufacturing PMI report for any given month comes out without any delay – either on the last day of that month or on the first day of the next month.

How it is captured:

  • The PMI is derived from survey responses to a series of qualitative questions from purchasing managers in a panel of around 400 manufacturers.
  • PMI is composite index based on five individual sub-indices:
    • New orders
    • Output
    • Employment
    • Suppliers’ delivery times
    • Stock of items purchased

Reading the PMI:

  • A figure above 50 denotes expansion in business activity and anything below 50 denotes contraction.
  • Higher is the difference from this mid-point, greater is the expansion or contraction.
  • The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

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