Purchasing Managers’ Index (PMI)
Purchasing Managers’ Index (PMI)
Why in news?
- The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) was at 55.5 in April 2021, little changed from March’s reading of 55.4.
Purchasing Managers’ Index
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
Producers of Purchasing Manager’s Index (PMI)
- There are three principal producers of Purchasing Manager’s Index (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.
Calculation of PMI
- Purchasing Manager’s Index (PMI) = [P1 * 1] + [P2 * 0.5] + [P3 * 0]
- In the above formula, P1 is equal to the percentage of answers that are reporting an improvement.
- P2 represents the percentage of answers with no change whereas, P3 is the percentage of answers having a deterioration.
- Purchasing Manager’s Index (PMI) focuses mainly on the five major Survey Areas:
- Employment
- New orders
- Production
- Inventory levels
- Supplier deliveries
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is a number from 0 to 100.
- PMI above 50 represents an expansion when compared to the previous month;
- PMI under 50 represents a contraction, and
- A reading at 50 indicates no change.
Implications of PMI for the economy
- 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 becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
- The PMI also gives an indication of corporate earnings and is closely watched by investors as well as the bond markets. A good reading enhances the attractiveness of an economy vis-a- vis another competing economy.
ALSO READ : https://www.brainyias.com/refraction-of-light/
