Purchasing managers index

Why in news?

• India’s manufacturing sector activity was largely flat in April, as rates of growth for new orders and output eased to eight-month lows amid the intensification of the COVID-19 crisis as per Manufacturing Purchasing Managers’ Index (PMI).

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.

Prelims 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 to Prelims Question