PMI
A monthly survey of purchasing managers: above 50 activity grows, below 50 it shrinks.
A survey, not an accounting statistic
Each month, purchasing managers at hundreds of companies answer a simple question on several items: is the situation better, the same or worse than last month? The index equals 50 plus half the gap between positive and negative answers. Above 50 activity grows; below 50 it shrinks.
Why markets watch it
The PMI comes out at the end of the month it covers (S&P Global flash) or on the first business day of the next month (US ISM), long before GDP. It therefore leads growth, and its prices-paid and delivery-time sub-indices hint at inflation to come.
ISM and S&P Global PMIs
In the US two surveys coexist: the ISM, the oldest and most watched, and S&P Global’s PMI. In the euro area, the UK, Japan or India, S&P Global PMIs (with partners such as HCOB or HSBC) are the benchmark. Manufacturing and services each have an index; the composite combines them.
- 100 if all report improvement, 0 if all report deterioration, 50 when views balance
Computing a sub-index
- Of 400 firms, 140 report more orders, 180 the same, 80 fewer.
- That is 35% better, 45% same, 20% worse.
- Index: 35 + 0.5 x 45 = 57.5.
57.5: orders are clearly rising from the previous month.
April 2020
At the height of the lockdowns, the US ISM manufacturing index fell to 41.5 and ISM services to 41.8, while the euro area composite PMI plunged to around 13.6, its record low.
Common mistakes
- Reading 49 as a recession: a PMI just below 50 signals mild contraction, not collapse.
- Forgetting that the PMI measures month-on-month change, not a level of activity.
Notitia newsroom · education, not investment advice.