PMI is an acronym of Purchasing Managers’ Index.
Senior managers at selected companies fill out a survey each month, recording measures of business output, new orders, employment, costs, selling prices, exports, purchasing activity, supplier performance, backlogs of orders and inventories of both inputs and finished goods.
However, the headline measure is a measure of sentiment – will your company’s output be higher, the same or lower in a year’s time? Higher is scored as 1, the same as 0.5 and lower as 0. If everyone was positive, the average score would be 100; if everyone was neutral, the score would be 50; and if everyone was negative, the score would be zero. Therefore, a score below 50 is indicative of an economy in contraction and vice-versa. Although the figures can range from 0 to 100, they typically come in at a range between 40 – 60.
S&P, which compiles these indices, also produces separate PMIs for the services and manufacturing sectors, as well as a range of sub-indices based on the metrics listed above.