Glossary
Purchasing managers' index (PMI)
A monthly survey-based gauge of business conditions in which a reading above 50 means activity is expanding and below 50 means it is contracting.
On this page
A purchasing managers' index (PMI) is a monthly economic indicator built from surveys of the people who buy materials and services for companies. Respondents say whether things like new orders, output and hiring are better, the same or worse than last month. The answers are combined into one number where 50 is the dividing line: above 50 means more firms report improvement than decline. Markets watch PMIs because they arrive early, at the start of the month, and often turn before official data such as GDP.
How it works
In the US the two best-known PMIs come from the Institute for Supply Management (ISM), one for manufacturing and one for services, plus a set from S&P Global. The ISM manufacturing PMI is an equally weighted average of five sub-indexes: new orders, production, employment, supplier deliveries and inventories.
How it is read
- Direction and level. A reading of 52 means modest growth; 60 means broad, fast growth. A move from 48 to 49.5 still signals contraction, but a slowing one.
- Sub-indexes. New orders often lead production. The prices-paid sub-index, released alongside the headline but not part of it, is watched as an early hint of Inflation pressure.
- Breadth, not size. A PMI measures how many firms are improving, not by how much. It can sit below 50 while GDP still grows, especially since manufacturing is a modest share of the US economy.
Because PMIs are sentiment surveys, they can swing on events that turn out to be brief. Analysts look at several months and at both the manufacturing and services readings before drawing conclusions about the Business cycle.