1. Economic Indicators: Introduction
  2. Economic Indicators: Beige Book
  3. Economic Indicators: Business Outlook Survey
  4. Economic Indicators: Consumer Confidence Index (CCI)
  5. Economic Indicators: Consumer Credit Report
  6. Economic Indicators: Consumer Price Index (CPI)
  7. Economic Indicators: Durable Goods Report
  8. Economic Indicators: Employee Cost Index (ECI)
  9. Economic Indicators: Employee Situation Report
  10. Economic Indicators: Existing Home Sales
  11. Economic Indicators: Factory Orders Report
  12. Economic Indicators: Gross Domestic Product (GDP)
  13. Economic Indicators: Housing Starts
  14. Economic Indicators: Industrial Production
  15. Economic Indicators: Jobless Claims Report
  16. Economic Indicators: Money Supply
  17. Economic Indicators: Mutual Fund Flows
  18. Economic Indicators: Non-Manufacturing Report
  19. Economic Indicators: Personal Income and Outlays
  20. Economic Indicators: Producer Price Index (PPI)
  21. Economic Indicators: Productivity Report
  22. Economic Indicators: Purchasing Managers Index (PMI)
  23. Economic Indicators: Retail Sales Report
  24. Economic Indicators: Trade Balance Report
  25. Economic Indicators: Wholesale Trade Report

The Institute for Supply Management (ISM) is responsible for maintaining the Purchasing Managers Index (PMI), which is the headline indicator in the monthly “ISM Report on Business.” The ISM is a non-profit group boasting more than 40,000 members engaged in the supply management and purchasing professions.

The PMI is updated each month by the ISM. The data is collected from purchasing executives at more than 300 industrial companies. An index reading of “50” or above generally is a sign of expansion in the economy.

The PMI is made up of several different surveys that include a number of elements such as:

  •          New orders
  •          Factory orders
  •          Employment levels
  •          Supplier’s delivery times
  •          Inventories

The purchasing managers participating in the survey will generally answer questions about these and other elements used in the survey with either “improvement,” “no change,” or a “deterioration.” The answers are scored and the results are tabulated.

 

Why the Purchasing Managers Index is important

The PMI is an extremely important indicator for investors looking for clues about economic growth. Many investors use the PMI as a leading indicator for Gross Domestic Product (GDP) growth or decline. The Fed and other central banks also use the results of PMI surveys when formulating monetary policy.

Individual components of the PMI can also be useful in various markets. For instance, the bond markets watch growth in supplier deliveries and prices paid, since these figures can provide insight into the potential for inflation. Inflation is the enemy of bond investors as this can erode the value of their investment.

PMI is a very important sentiment reading, not only for manufacturing, but also the economy as a whole. Although U.S. manufacturing is not the huge component of total gross domestic product (GDP) that it once was, this sector is still where recessions tend to begin and end. For this reason, the PMI is very closely watched, setting the tone for the upcoming month and other indicator releases.

 

Strengths of the PMI:

  • Very timely, coming out on the first day of the month following the survey month
  • A good predictor of future releases, such as GDP and the Bureau of Labor Statistics (BLS) manufacturing reports
  • Anecdotal remarks within the release can provide a more complete perspective from actual professionals (like in the Beige Book)
  • Report displays point changes from the previous report, along with the length in months of any long-term trends shown for the "sub-indicators," such as inventories or prices
  • Commodities, such as silver, steel and copper, are reported individually

 

Weaknesses of the PMI:

  • Only covers manufacturing sector—the “PMI Non-Manufacturing Business Report” covers many other industries in the same manner
  • Subjective in its data retrieval compared to other indicators
  • Regional reports released earlier (Philly Fed, Chicago NAPM) may have high correlations and can take some of the steam out of this release

Economic Indicators: Retail Sales Report
Related Articles
  1. IPF - Mortgage

    What is Private Mortgage Insurance (PMI) and What Are My Options?

    PMI is a type of mortgage insurance that buyers are typically required to pay for a conventional loan when they make a down payment that is less than 20 percent of the home’s purchase price.
  2. Investing

    Economic Indicators You Should Know for Investment

    Economic indicators are some of the most valuable tools investors can place in their arsenals. Understand these investing tools for better market returns.
  3. IPF - Mortgage

    How to Outsmart Private Mortgage Insurance

    It's possible to use a second mortgage to avoid this fee, but is it in your best interest?
  4. Insights

    Global Markets Subdued, Eurozone Business Growth at 18-Month Low

    The PMI index for the Eurozone has dipped to 52.9 which implies slow economic growth.
  5. Insights

    The Canadian Economy At A Glance

    The 12 economic indicators for Canada are described here and together they provide a comprehensive picture of their economy.
  6. Insights

    VP Debates and Brexit: Politics Dominate the Week Ahead

    A look ahead at the coming week in business, finance and financial markets.
  7. Investing

    Consumer Confidence: A Killer Statistic

    The consumer confidence is key to any market economy, so investors need to learn how to analyze them.
Trading Center