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Purchasing Managers Index

Context:

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) survey shows that the India’s manufacturing production growth and new orders eased to four-month lows in October, but a surge in new jobs and subdued price pressures kept producers optimistic about future prospects.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)

Dimensions of the Article:

  1. What is Purchasing Managers’ Index (PMI)?
  2. Understanding PMI

What is Purchasing Managers’ Index (PMI)?

  • The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
  • It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
  • In simple words, Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing.
  • PMI is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • PMI is compiled by IHS Markit for more than 40 economies worldwide – IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.

Understanding PMI

  • The PMI is a number from 0 to 100.
  • A print above 50 means expansion, while a score below that denotes contraction.
  • A reading at 50 indicates no change.
  • If PMI of the previous month is higher than the PMI of the current month, it represents that the economy is contracting.
  • It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
  • It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
  • IIP covers the broader industrial sector compared to PMI.
  • However, PMI is more dynamic compared to a standard industrial production index.

-Source: The Hindu


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