PURCHASE MANAGER’S INDEX

Why in News?

  • • PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity — both in the manufacturing and services sectors.

Purchase Managers Index.

  • • It is a survey-based measures 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.

What are its implications for the economy?

  • • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity.
  • • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates
  • • For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics (for the US, it is the ISM).

PMI for Manufacturing Sector:

  • • The variables used to construct India’s PMI for manufacturing sector are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers‟ Delivery Times, Stocks of Purchases and Stocks of Finished Goods. Similar variables are used for the construction of services PMI. A manufacturing PMI and a services PMI are prepared and published by the two.
  • • The Nikkei and Markit economics websites says that PMI data are based on monthly surveys of carefully selected companies.

PMI for Service Sector:

  • • The Nikkei India Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies.
  • • The index tracks variables such as sales, employment, inventories and prices. A reading above 50 indicates that the services sector is generally expanding; below 50 indicates that it is generally declining.
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