The Purchasing Managers' Index (PMI) is a concept and a leading economic indicator that measures the economic health of the manufacturing and services sectors. It is a diffusion index derived from monthly surveys of private sector companies.
The PMI originated with the Institute for Supply Management (ISM), which developed the manufacturing surveys for the United States, with data tracked since at least 1948. It was created to provide timely, forward-looking insights into economic trends, acting as a leading indicator of economic activity.
The index works by surveying purchasing managers on whether key business conditions have improved, remained unchanged, or deteriorated compared to the previous month. The headline manufacturing PMI is a composite of five components: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The index is calculated by taking the percentage of respondents reporting an increase and adding it to one-half of the percentage reporting no change. A reading above 50 signals expansion, a reading below 50 indicates contraction, and a reading of 50 suggests no change in the sector.
The PMI is a crucial indicator for macroeconomic concepts like GDP, inflation, and employment. In India, the PMI data is published by S&P Global, which acquired IHS Markit in 2022. It is often contrasted with the Index of Industrial Production (IIP), as the PMI is a sentiment-tracking index that senses dynamic trends, while the IIP shows changes in production volume. The core mechanism of the 50-point threshold and the five components has remained consistent, though the producer for India's PMI has changed to S&P Global.