The Purchasing Managers' Index (PMI) is a concept and a vital economic indicator that evaluates the health of a nation's manufacturing and service sectors. It is a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The manufacturing sector's monthly PMI was designed by the Institute for Supply Management (ISM) in the 1948s to provide early insight into economic activity, isolating emerging trends well in advance of subsequent government statistics like GDP.
The PMI is calculated separately for the manufacturing and services sectors based on a monthly survey of purchasing managers. The index is a composite of five key variables, each weighted: New Orders (30%), Output (25%), Employment (20%), Suppliers' Delivery Times (15%), and Stocks of Purchases (10%). The index ranges from 0 to 100. A reading above 50 indicates expansion in the sector, a reading below 50 signals contraction, and a reading of 50 indicates no change from the previous month.
The PMI is a leading indicator of economic activity, used by investors, policymakers, and central banks to forecast macroeconomic trends like economic growth, inflation, and employment. In India, the PMI is compiled by S&P Global (formerly IHS Markit) and is often referred to as the HSBC India Manufacturing PMI or Services PMI. The core mechanism of the five components and the 50-point threshold has remained the same, providing a consistent measure of business conditions.