Saturday, July 20, 2024

Purchasing Managers Index (PMI)

Purchasing Managers Index (PMI) Assesses business conditions in a country’s manufacturing and services sectors.

PMI measures changes in spending by business firms.

About 500 purchasing managers were asked to rate the relative levels of employment, inventory levels and business conditions such as new orders, production conditions and supplier deliveries.

A

reading above 50 indicates that the industry is growing. Conversely, a reading of below 50 indicates contraction.

What is PMI?

PMI is a composite index based on five main indicators:

  1. New Order
  2. Stock Levels
  3. Production
  4. Supplier delivery
  5. Employment environment.

Each indicator has a different weight, and the data is adjusted based on seasonal factors.

The Purchasing Managers Association surveyed more than 300 purchasing managers across the country representing 20 different industries.

A PMI above 50 indicates that manufacturing is expanding, while below 50 means the industry is contracting.

Why is PMI important?

The PMI report is an extremely important indicator for financial markets as it is the best indicator of factory production.

This index is widely used to detect inflationary pressures as well as manufacturing economic activity.

PMI is not as good at judging inflation as CPI, but since the data is released the day after the month, it is very timely.

If there are unexpected changes in the PMI report, the market usually reacts quickly.

A much-watched part of the report is the growth in new orders, which predicts manufacturing activity in the coming months.

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