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Purchasing Managers’ Index (PMI)

India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI)

What is Purchasing Managers’ Index ?

  • PMI is an indicator of business activity — both in the manufacturing and services sectors.
  • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
  • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

How to calculate PMI ?

  • The PMI is derived from a series of qualitative questions.
  • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
  • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
  • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
  • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

 

Tags: Current Affairs, Economics

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