A Purchasing Managers’ Index looks at economic trends in the manufacturing and service sectors.
There are two major producers of PMI that US investors may be familiar with: S&P Global and the Institute of Supply Management.
Because manufacturing and services companies differ in fundamental ways, the aspects each PMI seeks to represent differ somewhat as well.
How is the economy doing? That’s a common question asked by investors across the globe — but there’s not one single answer that can supply a complete picture. Gross domestic product, inflation, employment, and wage growth are all well-known indicators to watch. Another important indicator is a Purchasing Managers’ Index (PMI) which, unlike some of these other indicators, offers a forward-looking view of economic trends to expect.
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A Purchasing Managers’ Index (PMI) looks at economic trends in the manufacturing and service sectors to understand their health. Business executives in each of these sectors are surveyed monthly about key areas such as employment, output, prices charged, and the level of new orders.
Combined into a single number, this information can help indicate the direction of the broader economy and can help influence decisions by companies, central bankers, and investors. A PMI is measured from 0 to 100, with 50 showing no change compared to the prior month, and above or below 50 showing positive or negative change, respectively.
A Manufacturing PMI represents companies that produce goods in industries like automotive, clothing, and technology. A Services PMI gauges activity level in industries with a less tangible product, such as financial services, health care, and hospitality.
Because these sectors differ in fundamental ways, the business aspects each PMI seeks to represent differ somewhat as well. Both measure common metrics including new orders, employment, and prices paid, while some data points may be unique, such as customer inventories for manufacturing companies.
There is also a Composite PMI, which combines Manufacturing and Services into a single number for a holistic view.
There are two major producers of PMIs that US investors may be familiar with: S&P Global and the Institute of Supply Management (ISM). S&P Global produces PMIs for more than 40 countries, and the ISM focuses on PMIs for the US.
There are certain differences among the PMIs produced by ISM and S&P Global. For example, ISM takes a broader view of the services sector, including anything that’s not manufacturing as a service industry. Therefore, the ISM Services PMI includes some industries that S&P Global Services does not, such as mining, utilities, and agriculture, forestry, fishing, and hunting.
Other organizations produce Purchasing Managers’ Indexes as well, such as China’s National Bureau of Statistics, which produces the China PMI.
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Important information
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Gross domestic product is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified period of time.
The opinions referenced above are those of the author as of March 5, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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