The manufacturing Purchasing Manager’s Index (PMI), an essential barometer of economic activity, hit a two-year low in October 2019. The decrease in PMI was sharp and unexpected – it plunged from 51.4 in September 2019 to 50.6 in October 2019.
Understanding the Manufacturing PMI
PMI stands for Purchasing Managers’ Index, a critical indicator of business activity in the manufacturing and services sectors. The PMI is a survey-based measure that asks participants about their perspectives on key business variables compared to the previous month.
There are distinct PMI calculations for both the manufacturing and services sectors, which are then used to construct a composite index. Importantly, the PMI is a number that can range from 0 to 100. A PMI above 50 indicates expansion compared to the previous month, while one under 50 indicates contraction. If the PMI remains at 50, it signals no change in the sector.
In our current scenario, the PMI of the previous month is higher than the current one, suggesting a contracting economy. This index is usually revealed at the start of every month, making it an excellent leading indicator of economic activity.
The Importance of PMI
The PMI serves a critical purpose: it provides essential information about both current and future business conditions. Key decision-makers within companies, alongside analysts and investors, rely on it for insights.
As official data concerning the industrial output, manufacturing, and GDP growth often come much later, the PMI plays a pivotal role in fostering informed decisions at an earlier stage.
| Month | Manufacturing PMI | Composite PMI |
|---|---|---|
| August 2019 | No Data | 52.6 |
| September 2019 | 51.4 | 49.8 |
| October 2019 | 50.6 | No Data |