Purchasing Managers Index (PMI)

India’s manufacturing sector activity improved marginally in April, driven by a rise in new business orders amid favorable demand conditions, and easing inflationary pressures, a monthly survey showed.

The Nikkei India Manufacturing Purchasing Managers Index (PMI), rose from 51.0 in March to 51.6 in April, indicating faster improvement in the health of the manufacturing economy than in the prior month.

Inflationary pressures moderated for the second month in a row, with the softest increases for input costs and output charges reported since September 2017 and July 2017, respectively, the survey revealed.

What is the ‘Purchasing Managers’ Index – PMI’

The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.

PMI for India

For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics (for the US, it is the ISM). A manufacturing PMI and a services PMI are prepared and published by the two. The Nikkei and market economics websites say that PMI data are based on monthly surveys of carefully selected companies.

Variables used in constructing the PMI for the Manufacturing sector

The variables used to construct India’s PMI are Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers‟ Delivery Times, Stocks of Purchases and Stocks of Finished Goods. Similar variables (but less in number) are used for the construction of services PMI.

The PMI is very closely watched, as it shows the investor sentiment in an economy’s manufacturing sector. In terms of composition, we can say the PMI is a sentiment tracking index. On the other hand, the Index of Industrial Production indicates changes in production volume or output.

 

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