Context : Indian manufacturers won new orders in May at almost the same pace as in April despite raising prices at the fastest rate in more than eight-and-a-half years amid a sharp jump in input costs, as per the S&P Global India Manufacturing Purchasing Managers’ Index survey.
About the News
- The PMI index stood at 54.6, easing marginally from 54.7 in April. A reading of over 50 indicates an expansion in activity. May marks the 11th month in a row that India’s manufacturing PMI reflected an expansion.
- New export order growth quickened, posting the best expansion in 11 years.
- Manufacturing sector jobs grew for the second month in a row, owing to ongoing improvements in sales and although the pace of job creation was ‘only slight’, it was still the strongest recorded since January 2020,
- Despite the broader buoyancy, business sentiment was dampened by inflation concerns.
What is PMI index ?
- Purchasing Managers’ Index (PMI) is a survey-based economic indicator designed to provide a timely insight into business conditions.
- The PMI is widely used to anticipate changing economic trends in official data such as GDP, or sometimes as an alternative gauge of economic performance and business conditions to official data, as the latter sometimes suffer from delays in publication, poor availability or data quality issues.
- The PMI is produced globally by IHS Markit although a small number of trade associations also produce local PMIs in certain markets, such as the ISM in the United States.
What does the Purchasing Managers’ Index measure?
- The Purchasing Managers’ Index (PMI) is a survey-based indicator of business conditions, which includes individual measures (‘sub-indices’) of business output, new orders, employment, costs, selling prices, exports, purchasing activity, supplier performance, backlogs of orders and inventories of both inputs and finished goods, where applicable.
- The surveys ask respondents to report the change in each variable compared to the prior month, noting whether each has risen/improved, fallen/deteriorated or remained unchanged.
- These objective questions are accompanied by one subjective ‘sentiment’ question asking companies whether they forecast their output to be higher, the same or lower in a year’s time.
- Originally compiled for manufacturing, IHS Markit pioneered the extension of coverage to other sectors in the 1990s, including services, construction and retail.
- The PMI and its sub-indices are widely used to anticipate changing economic trends in official data such as GDP, or sometimes as an alternative gauge of economic performance and business conditions to official data, as the latter sometimes suffer from delays in publication, poor availability or data quality issues.
What is Manufacturing Purchasing Manager’s index
- A manufacturing Purchasing Managers’ Index is a survey-based economic indicator designed to provide a timely insight into changing business conditions in the goods-producing sector.
What is a services PMI?
- The services PMI was introduced in 1996 by IHS Markit’s economists (known as NTC Research at the time) to accompany the existing manufacturing PMI.
- With the service sector accounting for a larger proportion of GDP than manufacturing for most developed economies, the services PMI was born out of a need for analysts (and in particular central bank policymakers) to better understand changing business conditions in the wider economy.
- The services PMI has fewer questions than the manufacturing PMI due to some questions, such as inventories, not being relevant to many service providers.
- Coverage includes financial services, consumer services and all other business services.
Composite Purchasing Managers Index
- The composite Purchasing Managers’ Index (PMI) is an indicator of economic health for manufacturing and service sectors.
- The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.
- Each country PMI survey for the manufacturing or service sector is based on questionnaire responses from panels of senior purchasing executives (or similar) at over 400 companies.
- The composite PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month.
Importance
- The PMI is widely seen as an accurate and timely indicator of business conditions that helps analysts and economists to correctly anticipate changing economic trends in official data series such as gross domestic products (GDP), industrial production, employment and inflation. Because PMI data are sometimes released months ahead of comparable official data, the PMI surveys are ranked among the world’s most market moving economic data releases.
Facts for Prelims
Purchasing Manager’s Index
A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change