Purchasing Managers’ Index (PMI)

Context: The headline seasonally-adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose from 46 in July to 52 in August, signalling an improvement in operating conditions across the manufacturing sector following four consecutive months of contraction.

Analysis

  • ‘Purchasing Managers’ index’ is considered as an indicator of the economic health and investor sentiments about the manufacturing sector (there is services PMI as well).
  • The PMI is constructed separately for manufacturing and services sector. But the manufacturing sector holds more importance.
  • In a PMI data, a reading above 50 indicates economic expansion, while a reading below 50 points shows contraction of economic activities.
  • For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics.
  • The variables used to construct India’s PMI are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers’ Delivery Times, Stocks of Purchases and Stocks of Finished Goods. 

How PMI is different from IIP

  • In contrast to volume-based production indicator like the IIP, the PMI senses dynamic trends because of the variables it uses for the construction of the index.
  • For example, new orders under PMI show growth-oriented positive trends and not just volume of past products that can be traced in an ordinary Index of Industrial Production.
  • Hence, the PMI is more dynamic compared to a standard industrial production index.

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