Purchasing Managers Index

Context:

India’s services firms saw growth in new business and output accelerate to a 11-year high in June, as per the survey-based S&P Global India Services Purchasing Managers Index (PMI).

• The index rose to 59.2 last month, from 58.9 in May, signalling a strengthening in demand across the services sector, which had borne the brunt of the COVID-19 pandemic.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)

Dimensions of the Article:

1. What is Purchasing Managers’ Index (PMI)?
2. Understanding PMI

What is Purchasing Managers’ Index (PMI)?

• The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
• It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• In simple words, Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing.
• PMI is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
• PMI is compiled by IHS Markit for more than 40 economies worldwide – IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.

Understanding PMI

• The PMI is a number from 0 to 100.
• A print above 50 means expansion, while a score below that denotes contraction.
• A reading at 50 indicates no change.
• If PMI of the previous month is higher than the PMI of the current month, it represents that the economy is contracting.
• It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
• It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
• IIP covers the broader industrial sector compared to PMI.
• However, PMI is more dynamic compared to a standard industrial production index.

-Source: The Hindu