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Indian Economy

Purchasing Manager’s Index

  • 02 Nov 2019
  • 2 min read

Why in News

The manufacturing Purchasing Manager’s Index (PMI) was recorded at a 2-year low in October 2019. The score has decreased from 51.4 in September 2019 to 50.6 in October 2019.

Definition: PMI is an indicator of business activity- in the manufacturing and services sectors.

Calculation of 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 latest composite PMI decreased to 49.8 in September 2019 from 52.6 in August 2019.
  • 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.
    • If 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.

Purpose: To provide information about current and future business conditions to company decision-makers, analysts, and investors. As the official data on industrial output, manufacturing and GDP growth comes much later, PMI helps to make informed decisions at an earlier stage.

Source: IE

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