PMI

Definition

The Purchasing Managers' Index (PMI) is an indicator used to measure economic trends in the manufacturing and service sectors. It is composed of a diffusion index that summarizes the views of purchasing managers on whether market conditions are expanding, unchanged, or contracting. The primary purpose of PMI is to provide business decision-makers, analysts, and investors with information about current and future business conditions.

Origin

The concept of the Purchasing Managers' Index originated in the United States in the 1940s, initially developed by the Institute for Supply Management (ISM). As the global economy has evolved, PMI has become one of the most widely used international economic indicators to assess the health of economic activity.

Categories and Features

PMI is typically divided into Manufacturing PMI and Services PMI. Manufacturing PMI focuses on aspects such as production, orders, inventory, employment, and supplier delivery times in the manufacturing sector, while Services PMI focuses on business activity, new orders, employment, and input prices in the service industry. The PMI value is usually divided at 50, with values above 50 indicating economic expansion and below 50 indicating contraction.

Case Studies

A typical case is during the COVID-19 pandemic in 2020, when China's Manufacturing PMI fell to 35.7 in February, indicating severe economic contraction. However, as the pandemic was controlled and economic activities resumed, the PMI quickly rebounded in the following months, reflecting economic recovery. Another example is the United States during the 2008 financial crisis, where the Manufacturing PMI also fell to a low point and then gradually recovered with the implementation of economic stimulus policies.

Common Issues

Common issues investors face when using PMI include how to interpret changes in PMI and how to combine it with other economic indicators. A common misconception is viewing a single month's PMI data as an indication of long-term trends, whereas in reality, changes in PMI need to be analyzed over multiple months to obtain a more accurate judgment of economic trends.