Purchasing Managers’ Index

The Purchasing Managers’ Index (PMI) is a monthly survey-based indicator of whether business conditions are improving or deteriorating. It summarises purchasing managers’ reports of changes relative to the previous month, providing an early signal of the direction and breadth of near-term economic activity, rather than a direct measure of GDP growth.

What the index measures

Purchasing managers report changes in business conditions through questions covering areas such as new orders, output or business activity, and employment. Because these decisions reflect firms’ current operations and demand conditions, PMI releases help assess economic momentum before many official statistics become available.

• The manufacturing PMI summarises conditions in manufacturing, while the services business activity index tracks activity in the services firms surveyed.
• The composite PMI output index combines manufacturing output and services business activity indicators to provide a broader picture of private-sector activity.
• PMI is a diffusion index: it captures how widespread reported improvement or deterioration is across surveyed firms, rather than directly measuring the quantity of output.

How to interpret the reading

The critical reference point is 50, and the comparison is with the previous month, not the same month of the previous year.

• A reading above 50 signals expansion in the conditions measured, while a reading below 50 signals contraction; 50 indicates no overall change.
• A rise from 52 to 55 indicates stronger expansion, whereas a fall from 55 to 52 indicates slower expansion, not contraction.
• A rise from 45 to 48 indicates that contraction has moderated, but conditions are still deteriorating.
• A reading of 55 does not mean that output or GDP has grown by 5 per cent.

What it signals, and its limits

Stronger new orders can signal future production requirements, while employment and input-cost responses provide additional clues about labour demand and cost pressures.

• PMI is useful for judging turning points and near-term momentum, but it is not a guaranteed forecast.
• Its survey-based coverage does not represent every enterprise or the whole economy, so it cannot substitute for GDP estimates.
• It should be read alongside official indicators such as the Index of Industrial Production and national accounts, especially when assessing the strength and durability of growth.