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.