About: Purchasing Manager Index (PMI) and It’s significance

Headline : Manufacturing PMI improves

Details :

In News:
  • The Nikkei India Manufacturing Purchasing Managers’ Index rose in November from October, indicating an increase in manufacturing activity November.
About: Purchasing Manager Index (PMI)
  • The Nikkei India Manufacturing PMI 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.
  • 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 from purchasing managers to a a series of qualitative questions.
  • 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.
News Summary:
  • The October Nikkei India Manufacturing Purchasing Managers’ Index, at 50.6, was a two-year low.
  • Now, in November, the Index rose to 51.2. In comparision, the survey average is 53.8.
  • This indicates that, although business conditions in the Indian manufacturing sector improved in November, the upturn remained subdued compared to earlier in the year and the survey history.
  • The rates of expansion in factory orders, production and exports remained far away from those recorded at the start of 2019. Subdued underlying demand is being seen as a major reason for this.
Performance of sub-indices:
  • Good: The Index rise was driven by a modest increase in the growth of new orders and production.
  • Bad: On the other hand, it was concerning that firms shed jobs (for the first time in 20 months) and continued to reduce input buying.
Various segments:
  • The consumer goods segment growth mainly propped up the growth in the overall manufacturing sector.
  • The intermediate goods segment also returned to expansion.
  • However, the capital goods segment reported a deterioration in the operating conditions.
Section : Economics

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