What is the PMI?
We quote the PMI Index on the PMG website at the beginning of every month. This article explains why its so important and how it works.
A purchasing managers’ index (PMI) can be a valuable and accurate economic indicator. Learn more about what it is, how it’s derived and how you can use it when trading.
A purchasing managers’ index (PMI) produced by a company like IHS Markit is an economic indicator representing the rate of expansion or contraction of a specific sector – such as manufacturing, services or construction. Published monthly, PMIs are derived from surveys completed by managers from a range of differently sized companies within a chosen sector.
Ideally, PMIs aim at quickly identifying market trends and turning points. Economists, analysts and managers look to PMIs as near-real time measures of the state of an industry. Moreover, given the importance of the manufacturing, service and construction sectors, economists and managers also use it to gauge the performance of the economy as a whole.
In this regard, the advantage that the PMI enjoys over gross domestic product (GDP) data is that whereas official, government-published data may lag behind the economy by three months, the PMI can be used to anticipate these later statistics and to make timely and essential decisions about planned business expenditure. The indices may even inform monetary policy – specifically, interest rates.
The selection of survey respondents is designed to model the economic sector as closely as possible to produce accurate, truly representative results. A primary benefit of a PMI is that each month’s results are published within the first working week of the following month – putting PMIs amongst the first reliable indicators of prevailing market conditions.
The full article can be read – here