Manufacturing Purchasing Managers’ Index (PMI)

Syllabus: General Studies Paper 3

India’s manufacturing industry remained robust and expanded at a faster pace in October indicating a strong improvement in the health of the sector.

• • The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.3 in October from 55.1 in September.
  • While a reading above 50 indicates an overall expansion compared to the previous month, a print below 50 shows an overall decrease.

• The index is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

• The upward movement in the October headline figure largely reflected stronger increases in employment and stocks of purchases.
• Firms were again able to secure additional work, taking the current sequence of growth to 16 months. 
• Overall, factory orders increased at an above-trend pace that was nonetheless the weakest since June.
• Capacities were again expanded to accommodate for improving sales.
• Production likewise expanded at a slower rate at the start of the third fiscal quarter

The Purchasing Managers Index (PMI)

• PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity — both in the manufacturing and services sectors.
• It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before.
• It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
• The index is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
• The PMI is derived from a series of qualitative questions. Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them
• A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
• The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity and of industrial output
• Central banks of many countries also use the index to help make decisions on interest rates.
• The PMI also gives an indication of corporate earnings and is closely watched by investors as well as the bond markets.