PMI
The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions are expanding, staying the same, or contracting as viewed by purchasing managers. The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors.
Purchasing Managers' Index (PMI)
Definition
The Purchasing Managers' Index (PMI) is a key indicator of economic trends in the manufacturing and service sectors. It is composed of a diffusion index that summarizes the views of purchasing managers on market conditions, whether they are expanding, unchanged, or contracting. The primary purpose of PMI is to provide business decision-makers, analysts, and investors with information about current and future business conditions.
Origin
The concept of PMI originated in the United States in the 1940s. It was initially developed by the Institute for Supply Management (ISM) to provide businesses with a quick and reliable barometer of economic activity. Over time, PMI has been adopted by countries worldwide and has become an internationally recognized economic indicator.
Categories and Characteristics
PMI is mainly divided into two categories: Manufacturing PMI and Services PMI:
- Manufacturing PMI: Measures changes in manufacturing production, orders, new orders, inventories, employment, and other aspects. A Manufacturing PMI above 50 indicates expansion in the manufacturing sector, while below 50 indicates contraction.
- Services PMI: Measures changes in business activity, new orders, employment, supplier delivery times, and other aspects in the service sector. A Services PMI above 50 indicates expansion in the service sector, while below 50 indicates contraction.
Specific Cases
Case 1: In early 2020, the COVID-19 pandemic led to a significant decline in global economic activity. The U.S. Manufacturing PMI dropped from 50.9 in January 2020 to 41.5 in April, indicating severe contraction in the manufacturing sector. However, as the economy gradually recovered, the PMI rebounded in the second half of 2020, reflecting the recovery in manufacturing.
Case 2: China's Services PMI reached a high point in early 2021, reflecting strong recovery in domestic consumption and the service sector. However, due to global supply chain issues and recurring pandemic waves, the Services PMI declined in the second half of 2021 but remained in the expansion zone.
Common Questions
Question 1: Why does a PMI above 50 indicate economic expansion?
Answer: PMI is a diffusion index, and 50 is a neutral point. Above 50 indicates that most businesses report increased business activity, while below 50 indicates that most businesses report decreased business activity.
Question 2: Can PMI accurately predict economic trends?
Answer: PMI is a leading indicator and usually reflects economic trends early. However, it is also subject to short-term fluctuations and external factors, so it should be analyzed in conjunction with other economic indicators.
