Purchasing Managers Index (PMI)

Purchasing Managers Index (PMI)

Part of: GS Prelims and GS III – Economy

In News: Survey-based June PMI for services sector shows second successive contraction at 41.2

What is PMI?

• It is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
• It is calculated separately for the manufacturing and services sectors and then a composite index is constructed. 
• The PMI is a number from 0 to 100. 

• • PMI above 50 represents an expansion when compared to the previous month;
  • PMI under 50 represents a contraction, and
  • A reading at 50 indicates no change.

• f PMI of the previous month is higher than the PMI of the current month (as is the case mentioned above), it represents that the economy is contracting.
• The PMI is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
• Also, since the official data on industrial output, manufacturing and GDP growth comes much later, PMI helps to make informed decisions at an earlier stage.
• PMI provides information about current and future business conditions to company decision-makers, analysts, and investors.