The recent report on the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) showcased a score of 55.5 in April 2021, virtually remaining steady from its previous reading of 55.4 in March. This data brings to light several integral factors about PMI as a measurement tool for gauging business sentiments across various economies.
Understanding the PMI
The Purchasing Managers Index, often abbreviated as PMI, is a survey-based measure utilized to track the perception shift regarding key business variables among respondents month-over-month. Aimed at presenting crucial updates about present and anticipated business environment, it aids company decision-makers, analysts, as well as investors in forming informed strategies and expectations.
Interestingly, PMI is not a uniform measure but is calculated separately for the manufacturing and services sectors. Subsequently, a consolidated index is created to provide a more comprehensive overview of the economic conditions.
Decoding the PMI Score
The PMI ranges from 0 to 100. It provides an instant indication about the market conditions with scores above and below the mid-point of 50 representing expansion and contraction in the economy respectively. A precise 50 score indicates a status quo with no business change from the preceding month. In cases where the current PMI score fails to surpass the preceding month’s score, it signifies an economic contraction.
The PMI data is typically released at the commencement of each month, making it an effective leading indicator of economic activity.
The Role of IHS Markit
IHS Markit, recognized worldwide as a trailblazer in offering information, analytics, and solutions pertinent to the major industries and markets that steer global economies, compiles the PMI data for over 40 economies. Its contribution proves invaluable by supplying the PMI data, which allows for early-stage informed decision-making before the release of official statistics about industrial output, manufacturing, and Gross Domestic Product (GDP) growth.
PMI versus Index of Industrial Production (IIP)
Although both PMI and Index of Industrial Production (IIP) serve to gauge the level of economic activity, they are fundamentally different. While IIP provides a more widespread reading of the industrial sector, PMI offers more versatility as it is not static and can better adapt to changes in the business environment.
To sum up, PMI is a dynamic and comprehensive tool for understanding and predicting economic conditions across the globe, promoting informed decisions and strategies among businesses, analysts, and investors.