What is the PMI Index? What does it reflect?

What is the PMI Index

The PMI, or Purchasing Manager Index, is a very interesting index. To measure how the economy will be in the future or What is the level of purchasing power? it is a survey of the company’s operators around the world in more than 30 countries, covering developed countries and developing countries on every continent to index the data.

What is PMI or Purchasing Manager Index?

PMI Index or Purchasing Manager Index is straightforward and uncomplicated because every time before production or conducting economic activities Manufacturing company or organization will be aware of the market needs or is it necessary to prepare the product or services to satisfy consumers. Therefore, when knowing the quantity of demand or to support the volume of market demand, a company or organization will inevitably receive orders for production, and the most important thing is to prepare the raw materials. And the person who will buy or supply the raw materials can be none other than the purchasing department. Therefore, the PMI, or Purchasing Manager Index, is another important index.

The PMI, or Purchasing Manager Index, is made by whom?

There are two main institutions that provide the PMI index.

  1. In the US, it is provided by ISM (Institute for Supply Management), while in more than 30 countries around the world it is provided by IHS Markit Ltd. 
  2. For China, it is prepared by both the public and private sectors by the Caixin Institute (Caixin Media Company Ltd.).

Why it has to be the US and China surveys, we all know that the United States has long been one of the most powerful countries in the world. This may be the reason why the US is suitable for surveyors, whether in terms of politics and governance or the economy itself. And as we know, China is a major production source. Many companies located in China have a cost advantage. It wouldn’t be strange if China were to be an explorer. because it is close to the data source and it is also the information that fully reflects the production capacity as well.

Various factors are used in calculating the PMI Index, or Purchasing Manager Index.

The factors used to calculate the PMI index are weighted differently in five ways: new orders, product, employment, raw material transit time, and raw material inventory. We know that this is a part of the supply chain that will always carry out activities to produce enough to meet the demand. Therefore, if there is a new order, the purchasing department is important in preparing raw materials to meet the needs of the production department. It is not only an important index; it is also an important part of the production process. to meet the needs of the upcoming market.

In addition, the highlight of the PMI index is the frequency of preparation and the speed of publishing, which are organized on a monthly basis It is more frequent than the quarterly GDP data. Therefore, using the PMI as an indicator of future economic activity trends can reflect timely economic prospects. The values of the PMI index are interpreted as follows:

  • If the index is above 50, the economy is likely to expand from its current level. 

  • If the index is 50, the economy is likely to stabilize from its current level. 

  • If the index is below 50, the economy is likely to shrink from its current level.

When we get to know the PMI Index, or Purchasing Manager Index, the next time we hear analysts and investors talking about the PMI Index, we can make a preliminary assessment of the economic growth trend.

Relate article

Everyone can follow ACU PAY Thailand through other tracking channels.