PMI

1) Stands for Purchasing Manufacturing Index. It is a set of monthly released indicators which show the strength of the manufacturing sector in a country

2) It comprises of the following indicators amongst others a) New Orders b) Inventory levels c) Production and supplier deliverables Each of these can be viewed in isolation and have different objectives

3) In USA, it is produced by the ISM (Institute of Supply Management) whereas in most of the world it is produced by the Markit Group

4) Each month, questionnaires are sent to over 400 mangers of leading manufacturing firms. These surveys comprise of purely objective questions and ask about variables like employment conditions, new orders, input prices etc

5) The survey results are then taken and run through an econometric model. In the end, the final results are as follows a) Above 50 – Growth in strength of manufacturing sector b) 50 – No change in manufacturing sector c) Below 50 – Decline in strength of manufacturing sector

6) The PMI is one of the first economic indicators released for the month (typically released on the first day of the month).

According to rumor, economist Alan Greenspan has called the PMI the “desert island indicator” that is, if he were stranded on an island and needed to conduct policy with respect to only one economic indicator, this would be it.

United States PMI

Source: ISM