Purchasing Managers’ Index (PMI)

Why in news?

• India’s manufacturing sector expanded for the fourth month in a row in October, with the IHS Markit Purchasing Managers’ Index (PMI) rising to 55.9 from 53.7 in September.

What is PMI?

• It is considered as an indicator of the economic health and investor sentiments about the manufacturing and service sector.
• In a PMI data, a reading above 50 indicates economic expansion, while a reading below 50 points shows contraction of economic activities.
• The PMI is constructed separately for manufacturing and services sector.

Parameters of the Index

• PMI index was based on five major indicators:
  • New orders
  • Inventory levels
  • Production
  • Supplier deliveries and
  • Employment environment
• All these indicators strategically are capable of showing the business momentum in the industrial sector of an economy.

How PMI is different from IIP

• The popular index that measures growth in the industrial sector as far as India is concerned is the NSO prepared Index of Industrial Production.
• PMI on the other hand is published by private firms like IHS Markit.
• IIP shows the change in production volume in major industrial sub sectors like manufacturing, mining and electricity.
• But compared to volume based production indicator like the IIP, the PMI senses dynamic trends in the economy
• For example, ‘new orders’ under PMI shows growth oriented positive trends and not just volume of past production that can be traced in IIP.
• ‘Inventory level’ shows recessionary or boom trends. Employment scenario is also an investor sentimental indicator.
• Hence PMI is an investor sentiment tracking index. On the other hand, the IIP indicates changes in production volume or output.

PRACTICE QUESTION:

Consider the following statements regarding ‘Purchasing Managers Index’:

1. It is published by National Statistical Organisation (NSO).

2. It is published only for the manufacturing sector.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer