Purchasing Managers’ Indexes™ (PMI™)

A series of economic indexes prepared monthly by a private firm, Markit Economics. The index is a number from 0 to 100, based on monthly surveys of a selected set of companies. Manufacturers, for example, are asked whether in the last month each of five factors (new orders, production, employment, supplier delivery times and inventories) has improved, stayed the same, or deteriorated. The index number for each factor is the percentage replying “improved” plus half the percentage replying “stayed the same.” The composite (or “headline”) index combines the five factors. A PMI of 50 indicates no change. Values above 50 reflect increasing economic activity, and values below 50 the reverse. Usually the result is reported to one decimal place.

The beauty of this methodology is its extreme simplicity. The managers surveyed make no predictions, but simply report a small number of very knowable, very recent comparisons. One result is that the data can be very speedily collected, processed and published long before a government can release official figures.

Whether the results truly represent the current trend depends in large part on the good judgment of Markit in choosing a representative set of company executives to be surveyed. In addition, in creating the composite indexes Markit processes the data; returns from large companies, for example, are given greater weight than returns from small ones. The details of the methodology are proprietary.

The same methodology is used in every country.

The longevity of this index is evidence of its usefulness.

resources

Markit's own website, http://markiteconomics.com provides a great deal of information. Current PMI data for the United States is reported online in the Institute for Supply Management's Report on Business® (see www.ism.ws/ISMReport/MfgROB.cfm). However, one should be aware that in calculating the composite index ISM does not weight individual factors, while Markit does. An example of PMI data is available in a “PMI Summary” Excel spreadsheet for the United States' manufacturing sector, covering months between January 1948 and 2012, which can be downloaded from www.ism.ws/files/ISMReport/MfgTotalPMI12.xls