What Is PMI (Purchasing Managers’ Index)?
PMI, short for Purchasing Managers’ Index, is a monthly survey of business conditions in manufacturing or services. A reading above 50 means the sector grew compared with the month before; below 50, it shrank.
In the US, two manufacturing PMIs come out each month: S&P Global’s and the Institute for Supply Management’s (ISM). The date and time of the next S&P Global release are on When is the next S&P Global US Manufacturing PMI? The forecast and the recent results against it are on S&P Global US Manufacturing PMI.
How the survey works
Purchasing managers at a fixed panel of companies answer the same questions every month. Were these higher, the same or lower than a month earlier?
- output;
- new orders;
- employment;
- suppliers’ delivery times;
- stocks of purchases.
S&P Global collects the answers in the second half of the month (S&P Global PMI releases).
How to read the number
Each question becomes a diffusion index: the share of companies that answered “higher”, plus half the share that answered “the same”. At 50, as many reported a rise as a fall.
The number shows how widespread a change is, not how big it is. A PMI of 55 says growth is broad. It does not say output rose 5 percent.
S&P Global’s headline manufacturing PMI weighs five of the indices:
- new orders, 30%;
- output, 25%;
- employment, 20%;
- suppliers’ delivery times, 15%, turned upside down, as slower deliveries go with busier factories;
- stocks of purchases, 10%.
What to look at beyond the headline
- New orders is the most forward-looking part: today’s orders are tomorrow’s output.
- Employment feeds expectations for the jobs data, such as NFP.
- The survey’s price questions are an early read on CPI inflation.
A headline at 51 with new orders below 50 is weaker than it looks.
For the largest economies, S&P Global publishes a flash estimate late in the survey month, before the final figure. As the first look at the month, the flash is usually the one the market reacts to.
Why PMI moves currencies
PMI data come out each month ahead of the official figures on output and GDP. That makes them one of the earliest clues to what a central bank will do with interest rates.
- A reading above the forecast points to a stronger economy and firmer policy. That tends to lift the currency.
- A reading below the forecast tends to weigh on it.
The surprise against the forecast moves the price more than the level does.
The other major economies have their own: Euro Area Manufacturing PMI, UK Manufacturing PMI, Japan Manufacturing PMI, Canada Manufacturing PMI and Australia Manufacturing PMI.