What is the Purchasing Managers’ Index?

The Purchasing Managers’ Index (PMI) reflects results of surveys carried out against business to try and determine whether the activity of an economy is falling or increasing. The PMI is the economic indicator and released by firms such as IHS Markit on a monthly basis.

Participants are asked are serious of questions underpinned by looking to gain a view as to whether conditions have improved, remained the same or decline in comparison to the prior month.

Above 50 is good, below 50, not so good

Areas probed on include employment numbers, new orders received and amount of company stock (or assets). The collation of the surveys results in a PMI score or indicator being provided. A score of over 50 indicates an expansion of the sector or a score below 50 indicates a decline in the sector.

The results are usually segmented into a presentation for the Services PMI, Manufacturing PMI and Construction PMI. The general distinction between the two is that the former is focused on the domestic market, whilst the latter is more export-focused in respect to manufacturing.

For example, the Services PMI is conducted on over 600 companies working in areas including Insurance, Finance, Transport and General Business Services.

As an investor, these PMI indicators can often give you a feel for how the Economy is performing and whether your investments are likely to experience any negative and unexpected problems. Although they are just one of many considerations. For example, the Services PMI may signal a rapid contraction overall in Financial Services, but Online Stockbrokers may be performing very well as investors rush into snap up buying opportunities in shares!

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