What Is Purchasing Manager’s Index?

• The Manufacturing PMI tracks companies that make physical goods, from cars and clothing to electronics and industrial machinery. 
• The Services PMI looks at activity in sectors that provide less tangible offerings, such as finance, health care, transportation, and hospitality.
• Over time, PMI trends help flag shifts in GDP growth, inflation, employment, and interest rates.

A Purchasing Managers’ Index, or PMI, is one of the key tools investors use to gauge the health of the services and manufacturing sides of the economy.

The index can move sharply in times of stress: the U.S. Manufacturing PMI fell sharply in December 2008 during the financial crisis, and both manufacturing and services PMIs tumbled in April 2020 when pandemic lockdowns brought activity to a halt.

How PMI Surveys Are Compiled and Calculated

PMI figures are based on monthly questionnaires sent to purchasing managers at several hundred companies. Respondents report whether conditions, which include production, new orders, supplier deliveries, inventories, and employment, have improved, stayed the same, or worsened from the previous month. The Institute for Supply Management, for example, polls more than 300 manufacturers across different regions and sizes for its widely watched index.

Their responses are turned into an index, with 50 marking the line between expansion and contraction.

Difference Between Manufacturing PMI And Services PMI

The Manufacturing PMI tracks companies that make physical goods, from cars and clothing to electronics and industrial machinery. The Services PMI looks at activity in sectors that provide less tangible offerings, such as finance, health care, transportation, and hospitality.

Both surveys measure common elements like new orders, hiring, and prices paid, though some components differ. For instance, customer inventories are included in the manufacturing survey but not in the services survey because stockpiles are far more relevant to factories than to hospitals or consulting firms. Many analysts also look at the Composite PMI, which combines both readings to offer a broader snapshot of private-sector activity.

Why Does PMI Data Matter?

PMI data is released early every month, which gives investors real-time pointers on how the economy is performing. Strong readings often signal rising demand, stronger output, and potential earnings growth, while weak readings can hint at softer orders, slower hiring, and tepid business confidence.

Over time, PMI trends help flag shifts in GDP growth, inflation, employment, and interest rates. As the world was recovering from the 2009 financial crisis, manufacturing PMIs began to rise months before GDP data showed improvement. In mid-2020, the services sector PMI rebounded, indicating that parts of the economy were reopening. Since they capture both the direction and pace of the economy, they will remain among the most important tools for the markets to make investment calls.

Also See: This Pesticide Maker's Stock Has Slid Over 73% In 2025 — Barclays Sees Further Pain

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Share

·

Add us on