Purchasing Managers’ Index
Why in News?
The Purchasing Managers’ Index (PMI) is a critical economic indicator that measures the prevailing direction of economic trends in the manufacturing and service sectors. It is considered a leading indicator, providing a snapshot of economic health before official government data like GDP or industrial production is released.
How it Works?
- Scale of 0 to 100:
- Above 50: Indicates expansion compared to the previous month.
- Below 50: Indicates contraction.
- At 50: Indicates no change.
- Survey-Based: It is derived from monthly surveys sent to senior executives (purchasing managers) at hundreds of companies.
- Types: There are separate indices for Manufacturing and Services, which are often combined into a Composite PMI.
Five Key Pillars
The headline Manufacturing PMI is a weighted average of five sub-indices:
- New Orders (30%) — The most important forward-looking component.
- Output (25%) — Measures actual production levels.
- Employment (20%) — Tracks hiring and layoff trends.
- Suppliers' Delivery Times (15%) — Often an indicator of supply chain stress.
- Stocks of Purchases (10%) — Measures inventory levels of raw materials.
Major Compilers
- S&P Global: Compiles PMI for over 40 economies worldwide (including India).
- Institute for Supply Management (ISM): Compiles the widely followed PMI for the United States.
- HSBC: recently sponsors the India-specific PMI reports, hence they are often referred to as the "HSBC India PMI".
PMI vs. IIP (Index of Industrial Production)
| Feature |
PMI |
IIP |
| Source |
Survey-based (Private sector) |
Hard data (Government) |
| Frequency |
Monthly (released on the 1st/3rd day) |
Monthly (released with a 6-week lag) |
| Nature |
Leading Indicator (future-looking) |
Lagging Indicator (past performance) |
| Coverage |
Qualitative (Up/Down/Same) |
Quantitative (Actual units produced) |
|
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