PURCHASING
MANAGERS INDEX (PMI)
- ECONOMY
News: India's manufacturing activities remain strong in October: survey
What's in the news?
● Manufacturing
activities in India remained robust and price pressures were contained in
October as new orders and production rose at a slower but stronger pace,
according to a monthly survey released on November 1.
Key takeaways:
● The
seasonally adjusted S&P Global India Manufacturing Purchasing Managers
Index (PMI) was up from 55.1 in September to 55.3 in October.
● The
October PMI data pointed to an improvement in overall operating conditions for
the 16th straight month. In PMI parlance, a print above 50 means expansion
while a score below 50 indicates contraction.
● The Indian manufacturing industry again showed signs of resilience in October, with factory orders and production rising strongly despite losing growth momentum.
What is the PMI?
● It
is a survey-based measure that asks
the respondents about changes in their perception of key business variables as
compared with the previous month.
● It
is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
Objectives:
● The
purpose of the PMI is to provide information about current and future business
conditions to company decision makers, analysts, and investors.
Calculations:
● It
is calculated separately for the manufacturing and services sectors and then a
composite index is also constructed.
● The
PMI is a number from 0 to 100.
Takeaways:
● A
print above 50 means expansion,
while a score below that denotes contraction.
● A
reading at 50 indicates no change.
● If
the PMI of the previous month is higher than the PMI of the current month, it
represents that the economy is contracting.
● It
is usually released at the start of
every month.
● It
is, therefore, considered a good leading indicator of economic activity.
Compiled by:
● PMI
is compiled by IHS Markit for more
than 40 economies worldwide.
● IHS
Markit is a global leader in information, analytics and solutions for the major
industries and markets that drive economies worldwide.
● IHS
Markit is part of S&P Global.
● As
the official data on industrial output, manufacturing and Gross Domestic
Product (GDP) growth comes much later; PMI helps to make informed decisions at
an earlier stage.
IIP vs PMI:
● It
is different from the Index of Industrial Production (IIP), which also gauges
the level of activity in the economy.
● IIP covers the broader
industrial sector compared to PMI.
● However,
PMI is more dynamic compared to a standard industrial production index.
What is the Significance of PMI?
1. Provides a reliable expectation of Economy:
The
PMI is becoming one of the most tracked indicators of business activity across
the world.
It
provides a reliable expectation of how an economy is doing as a whole and
manufacturing in particular.
2. Indicator of Economic Activity:
● It
is a good gauge of boom-and-bust cycles in the economy and closely watched by
investors, business, traders and financial professionals besides economists.
● PMI
is also regarded as a leading indicator of economic activity since it is
released at the beginning of every month.
● It
comes before the official data on industrial output, core sector manufacturing
and GDP growth.
3. Helps in Decision Making:
● The
PMI is used by central banks to set interest rates.
● Besides
influencing equity market movements, PMI releases also impact bond and currency
markets.
4. Enhances Attractiveness of the Economy: A
good reading of PMI enhances the attractiveness of an economy vis-a-vis other
competing economies.
● Suppliers
can decide on prices depending on PMI movements.