PMI

Purchasing Managers' Index; survey-based gauge of manufacturing or services activity.

The Purchasing Managers' Index (PMI) is an economic indicator derived from monthly surveys of private sector companies. It provides a snapshot of business conditions by asking purchasing executives about changes in key variables such as new orders, production, employment, supplier deliveries, and inventories compared to the previous month. The index is typically divided into manufacturing and services sectors, or combined into a composite index. PMI is presented as a diffusion index ranging from 0 to 100. A reading above 50 indicates an expansion in business activity compared to the prior month, while a reading below 50 signals a contraction. A reading of exactly 50 indicates no change. Because these surveys are collected and released quickly, often before official government data like GDP or industrial production, PMI is highly valued as a leading economic indicator. Investors monitor PMI closely to gauge the health of the broader economy and anticipate shifts in corporate earnings. A rising or high PMI suggests robust economic growth, which can boost stock markets but may also lead to inflation and higher interest rates. Conversely, a falling or low PMI can signal an economic slowdown or recession, prompting central banks to cut interest rates. A common pitfall is overreacting to a single month's data point; investors should look for sustained trends over several months to confirm an economic trajectory.

If a manufacturing PMI survey reveals that 60% of responding purchasing managers report better business conditions than the previous month, 20% report no change, and 20% report worse conditions, the index is calculated as: (60 1.0) + (20 0.5) + (20 0.0) = 60 + 10 + 0 = 70. Since 70 is well above 50, this indicates strong expansion in the manufacturing sector.