The purchasing manager's index (PMI), is an indicator of the economic health from across 19 industries consisting of mainly manufacturing and service sectors. The index is compiled of surveys from senior executives such as business owners and supply chain managers at more than 400 companies. These executives are asked because they have access to a huge amount of data about their firm such as prices of products, hiring, and what is happening on the ground. The PMI is recorded and released monthly by the institute for supply management (ISM).
These senior executives get a questionnaire where they must answer questions about the business and give scores between 1-5 indicating the outlook they have on their business.
- 1 = higher
- 5 = the same
- 0 = lower
These figures are then added up to build an average score which gets placed onto a chart. A reading over 50 is a representation that an economy is expanding and improving, whereas when it’s below 50, this is seen as negative. Traders and policymakers often look towards the PMI to get an indication of an economy's health and use this alongside GDP data.
Key takeaways:
- PMI is a measure of the current direction of economic and global trends in manufacturing.
- The index is compiled of surveys from senior executives such as business owners and supply chain managers at more than 400 companies.
- The PMI is recorded and released every month by the institute for supply management (ISM).