PMI

PMI
Name	Purchasing Managers' Index
Type	Economic indicator
Founded	1948
Founder	NBER (orig. concept); IHS Markit and S&P Global (major compilers)
Headquarters	London; New York City
Area served	Global
Products	Composite indices, sector indices

PMI The Purchasing Managers' Index is a family of monthly economic indicators compiled from surveys of purchasing managers that signals expansion or contraction in activity. It is widely used by central banks, investors, and corporations to assess trends in manufacturing, services, and construction across national and regional economies. Major compilers and disseminators include IHS Markit, S&P Global, Institute for Supply Management, and national statistical agencies such as the Office for National Statistics and National Bureau of Statistics of China.

Definition and Abbreviations

The index is typically reported as Manufacturing PMI, Services PMI, and Composite PMI, with abbreviations like M-PMI and S-PMI appearing in market reports issued by S&P Global, IHS Markit, and the Institute for Supply Management. Survey components often cited include New Orders, Output (or Production), Employment, Supplier Deliveries, and Inventories, referenced in releases from the Federal Reserve Bank of New York and the Bank of England. Headline index values greater than 50 indicate expansion, whereas values below 50 indicate contraction, a convention used in commentary by European Central Bank analysts and researchers at the International Monetary Fund.

History and Development

Originating from postwar business survey techniques developed by researchers at the National Bureau of Economic Research and practitioners at trade groups, the format evolved through collaborations involving the Institute for Supply Management and consulting firms such as Markit Economics. The harmonization of survey questions and diffusion-index calculation methods was advanced during the 1980s and 1990s by teams at IHS Markit and academic economists affiliated with Harvard University and London School of Economics. Expansion to services-sector coverage and country-specific adaptations followed initiatives by the OECD and central banks including the Reserve Bank of Australia.

Types and Variants

Common variants include the Manufacturing PMI, Services PMI, Construction PMI, and Composite PMI, each produced by institutions like IHS Markit, the Institute for Supply Management, Caixin, and national statistical offices such as the Office for National Statistics (UK). Regional and sectoral derivatives cover areas such as Eurozone Manufacturing PMI, US Non-Manufacturing PMI, and China Caixin Manufacturing PMI; these are monitored by entities including the European Commission, Federal Reserve Bank of Chicago, and People's Bank of China. Specialized indices for sectors like automotive, pharmaceuticals, and retail are sometimes compiled by industry associations such as the Motor & Equipment Manufacturers Association and the National Retail Federation.

Methodology and Calculation

Surveys solicit qualitative month-over-month changes in variables; responses are categorized as improvement, no change, or deterioration. The diffusion index for each component is calculated as the percentage reporting improvement plus one-half the percentage reporting no change, a method employed in releases by IHS Markit and the Institute for Supply Management. The headline PMI is a weighted aggregate of selected components—commonly New Orders, Output, Employment, Supplier Deliveries, and Inventories—with weights disclosed by publishers like S&P Global. Seasonal adjustment and benchmarking to official series are performed according to practices recommended by the OECD and statistical manuals used by the United Nations Statistical Division.

Economic Significance and Interpretation

Market participants at institutions such as the European Central Bank, Federal Reserve, and Bank of Japan use PMI releases as high-frequency indicators for GDP growth, industrial production, and employment trends. Analysts at asset managers like BlackRock and Vanguard and economists at the International Monetary Fund incorporate PMI readings into nowcasting models and leading-index frameworks. Financial markets—equities, fixed income, and foreign exchange desks at firms such as Goldman Sachs and J.P. Morgan—react to surprises in PMI components like New Orders and Employment, which may presage revisions to forecasts from bodies like the Organisation for Economic Co-operation and Development.

Criticisms and Limitations

Critiques from academics at Massachusetts Institute of Technology and University of Chicago highlight sampling biases, limited coverage of small firms, and potential nonresponse error in surveys compiled by private vendors like IHS Markit. Comparability issues arise when country-specific questionnaires diverge, as observed between releases from Caixin and official Chinese authorities such as the National Bureau of Statistics of China. The diffusion-index format masks magnitude of changes, a limitation noted in methodological reviews by the OECD and policy papers from the Brookings Institution.

Applications by Industry and Region

Manufacturing PMI series are widely tracked in industrial economies including Germany, United States, China, Japan, and United Kingdom; services PMIs are emphasized for economies with large tertiary sectors such as India, Brazil, and Australia. Regional analytics groups at institutions like the European Central Bank and the Federal Reserve Bank of Atlanta produce composites for the Eurozone, North America, and Asia-Pacific, while multinational corporations—Siemens, Toyota, Procter & Gamble—use sector PMIs for supply-chain planning and procurement risk assessment. Development agencies such as the World Bank and Asian Development Bank reference PMI trends in country economic assessments and investment climate reports.

Category:Economic indicators