PMI- Purchasing Manager’s Index

The Purchasing Manager’s Index (PMI) is a vital economic indicator derived from monthly surveys of private sector companies. It serves as a crucial information source for decision-makers, analysts, and investors. There are three primary organizations responsible for producing the PMI:

1. Institute for Supply Management (ISM): Founded in 1915, headquartered in Arizona, USA.
2. Singapore Institute of Purchasing and Materials Management (SIPMM): Established in 1972, located in Singapore.
3. IHS Markit Group: Based in London, formed from the merger of IHS and Markit in 2016.

PMI values and their components offer valuable insights into a company’s economic activity, aiding decision-makers, market analysts, and investors.

PMI is calculated monthly by ISM and is based on surveys sent to senior executives of over 400 companies in 19 primary industries, weighted by their contribution to the U.S. GDP. It focuses on

five key survey areas
1. Employment,
2. New Orders,
3. Production,
4. Inventory Levels
5. Supplier Deliveries.
An index number ranging from 0 to 100 is assigned, with values above 50 indicating expansion, below 50 indicating contraction, and 50 indicating no change.

The PMI’s calculation involves weighing responses based on improvements, no change, or deterioration percentages. Suppliers use PMI data to estimate future demand and adapt production accordingly, affecting pricing strategies. Companies utilize PMI for budgeting, staffing, and cash flow forecasting. Additionally, investors rely on PMI as a leading indicator of economic conditions, impacting GDP, Industrial Production, and Employment.