Purchasing Managers Index (PMI)

  • The Services Purchasing Managers’ Index (PMI) in India increased sharply last month, rising to 58.5 from 56.4 in November 2022.
  • The Purchasing Managers’ Index (PMI) measures business activity in both the manufacturing and service sectors.
  • It is a survey-based metric that asks respondents about changes in their perception of certain key business variables from the previous month.
  • It is calculated separately for the manufacturing and services sectors before being combined to create a composite index.
  • IHS Markit compiles the PMI based on responses to questionnaires sent to purchasing managers in a panel of approximately 400 manufacturers.

How is the PMI calculated?

  • The PMI is calculated using a series of qualitative questions.
  • Executives from a large sample of hundreds of firms are asked to rate whether key indicators such as output, new orders, business expectations, and employment were stronger than the previous month.

How should the PMI be read?

  • A figure greater than 50 indicates increased business activity. Anything less than 50 indicates contraction.
  • The greater the deviation from this midpoint, the greater the expansion or contraction. The rate of expansion can also be determined by comparing the PMI to the previous month’s data.
  • If the figure is higher than the previous month’s, the economy is growing faster.
  • It is growing at a slower rate if it is lower than the previous month.

What are the economic implications?

  • The PMI is typically released at the beginning of each month, well ahead of the majority of official data on industrial output, manufacturing, and GDP growth.
  • As a result, it is regarded as a good leading indicator of economic activity.
  • Economists believe that the manufacturing growth measured by the PMI is a good indicator of industrial output, which is released later.
  • Many central banks use the index to help them make interest rate decisions.
And get notified everytime we publish a new blog post.