Manufacturing Purchasing Managers’ Index

The Manufacturing Purchasing Managers’ Index (PMI) is a survey-based indicator of business conditions in the manufacturing sector. It summarises month-to-month changes reported by purchasing managers in areas such as output, new orders, employment, inventories and supplier deliveries. It indicates the direction and momentum of activity, not the absolute level of industrial production.

How the index is interpreted

The index uses 50 as its neutral threshold. A reading above 50 indicates expansion compared with the previous month, while a reading below 50 indicates contraction; a reading of 50 indicates no overall change.

• A rise from 54 to 58 indicates faster expansion, while a fall from 58 to 54 indicates slower expansion, not contraction.
• A value such as 55 does not mean that manufacturing output grew by 5 per cent, because PMI is a diffusion index rather than a growth-rate measure.

What it reveals about manufacturing

Its components provide early signals about demand, production and operating conditions. New orders indicate demand momentum, while output and employment reflect current production and firms’ capacity decisions.

• Inventories and purchasing activity indicate how firms are preparing for expected production.
• Supplier delivery times can reflect demand pressures as well as supply-chain disruptions, so this component should be interpreted with other indicators.
• Because it is released frequently and based on current business responses, PMI serves as a high-frequency indicator of manufacturing momentum.

Limits and comparison with IIP

Manufacturing PMI reflects the experience of a surveyed panel and does not directly measure the physical quantity of goods produced. The official Index of Industrial Production (IIP) measures changes in production across manufacturing, mining and electricity, making it broader in sectoral coverage.

• PMI should be read with IIP, core-sector output, capacity utilisation and other indicators before drawing conclusions about overall industrial activity.
• Manufacturing PMI does not represent services or the entire industrial sector.