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Purchasing Managers Index

The Purchasing Managers’ Index (PMI) is an indicator of economic health for manufacturing and service sectors. For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics. 

Purchasing Managers Index 

  • India’s manufacturing conditions improved in June at the strongest pace in 2018 so far. 
  • For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics. 

PMI is calculated on the basis of information received on a monthly basis from companies on various factors that represent demand conditions. 

  • A standard questionnaire is administered to 500 private companies (PSUs are excluded) and the comprehensive score is arrived at. 
  • 5 parameters in PMI are – new orders (30% weightage), output (25%), employment (20%), supplier’s delivery (15%) and stock of purchases (10%). 
  • The respondents can either give a “Positive, Neutral or Negative” response and each response is marked as “1, 0.5 or 0” on the score card respectively. 
  • Hence, if there is unanimous positivity across all parameters, then the PMI score would be 100 (percentage) and an unanimous negative would mean 0. 
  • While an absolute score of 50 would mean neutrality, anything above it is perceived as an improvement and less than it would mean deterioration. 

Intuitively, it can be seen that the purpose of the PMI is to indicate some degree of confidence level in manufacturing based company perspectives. Notably, as PMI is a market sentiment tracker that compares the current month with the previous, it is season sensitive. 

What is “Index of Industrial Production” IIP? 

  • IIP measures actual production output across the industrial sector. 
  • Significantly, IIP for December 2017 would be reckoned with the same month in 2016, unlike PMI, which is monthly comparison. 
  • As it is a comparison over the previous year, it is season neutral. 
  • Therefore, as the basis of IIP and PMI are different, a comparison between the two is really not appropriate. 
  • However, as the PMI is released on the 1st of every month and the IIP is known on the 12th, the PMI score is assumed to be a precursor to the IIP. 
  • But the correlation between PMI and IIP isn’t strong and the relationship between the two variables is quite low and insignificant. 
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