PMI

Purchasing Managers' Indices (PMIs) are monthly surveys asking managers at companies whether conditions such as new orders, output, employment and prices are improving or worsening. Because they are released early in the month and respond quickly to changes, PMIs are among the most timely indicators of economic momentum. A reading above 50 signals expansion; below 50, contraction. Traders watch them for early signs of turning points in growth, especially in manufacturing.

How a PMI is calculated#

Respondents say whether each factor is higher, the same or lower than the previous month. Each component is converted to a diffusion index:

diffusion index = % reporting improvement + (0.5 × % reporting no change)

A reading of 50 means as many firms reported improvement as deterioration. The headline PMI combines several components with weights.

Main PMI families#

Key components of the ISM Manufacturing PMI#

PMIs and the economy#

• Manufacturing PMIs are sensitive to the goods cycle, inventories and global trade.
• Services PMIs cover the larger part of developed economies.
• Composite PMIs combine both and correlate reasonably well with GDP growth. See GDP.

The ISM notes that a manufacturing PMI above a level in the low 40s, sustained over time, has generally been consistent with overall economic expansion, because manufacturing is a smaller part of the economy than services.

PMIs and markets#

Research by brokers and strategists has found that the direction of PMIs, rising or falling, often matters more for asset returns than the level.

Limits of PMIs#

• Sentiment based: they measure the breadth of change, not the size.
• Supplier deliveries quirk: supply chain disruptions can raise the index even when activity weakens, as in 2021.
• Seasonal adjustment challenges.
• Volatility month to month; trends are more informative.

Frequently asked questions#

What is a PMI?#

A Purchasing Managers' Index: a monthly survey based indicator of business conditions, where readings above 50 signal expansion and below 50 contraction.

What is the difference between ISM and S&P Global PMIs?#

Both survey purchasing managers but use different samples and methods; ISM covers the US, while S&P Global publishes PMIs for many countries, including flash estimates.

Why do traders watch PMIs?#

Because they are timely and often signal turning points in economic growth before official data such as GDP.

Next, learn how consumer mood is measured in Consumer Confidence.