Purchasing Managers’ Index

About Purchasing Managers’ Index

• It 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 index helps in determining whether the market conditions, as seen by purchasing managers, is expanding, contracting or staying the same. 
• There are two types of PMI — Manufacturing PMI and Services PMI.

How is the manufacturing PMI derived?

• It is derived by sending fact-based questions to a large number of companies in the concerned sector.
• The questions are related to 5 key variables. The variables with their weights in the index are — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items purchased (10%).
• The surveys are conducted on a monthly basis.
• A PMI number greater than 50 indicates expansion in business activity.
• A number less than 50 shows contraction. The rate of expansion is also judged by the difference from the mid-point (50) and also by previous month’s data.
• PMI data for India is released by S&P Global - a global major in financial information and analytics.
• Earlier PMI data is India was released by IHS Markit before its merger with S&P.
• The Manufacturing PMI measures the performance of India’s manufacturing sector and is derived after a survey of approx. 500 manufacturing companies.

Q1) What is S&P Global?

Standard & Poor's (S&P) is a leading index provider and data source of independent credit ratings. It is one of the largest credit rating agencies, assigning letter grades to companies and countries and the debt they issue on a scale of AAA to D, indicating their degree of investment risk.

Source: PMI Manufacturing rises to 56 in November