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Understanding the headline PMI™ and its subindices
28 September 2021
Learn in-depth tips and background insights about Purchasing
Managers Index (PMI™) from the experts who compile and analyse the
survey data at IHS Markit. These articles dig into the history of
the PMI surveys and illustrate how the headline PMI and its various
subindices can be used to gain valuable insights into economic
growth, hiring, inflation, supply delays and capacity constraints
around the world and across business sectors. As such, the articles
also provide substantial insight into how to use the PMI for
economic analysts, investors, traders and policymakers.
Chris Williamson| Chief
Business Economist, S&P Global Market Intelligence
The new export orders index from S&P Global's PMI business
surveys tracks foreign demand for both goods and services. The data
can be used to gauge export demand over time across countries and
sectors.
The new export orders index can also be aggregated to provide a
useful and timely guide to global or regional trade flows, allowing
insights into changing demand conditions well ahead of comparable
official data.
Chris Williamson| Chief
Business Economist, IHS Markit
The suppliers' delivery times index from IHS Markit's PMI
business surveys captures the extent of supply chain delays in an
economy, which in turn acts as a useful barometer of capacity
constraints. The index therefore helps gauge the degree to which
the current demand/supply environment is indicative of either a
buyers'- or sellers'-market, and hence provides valuable
information on developing inflation trends.
Chris Williamson| Chief
Business Economist, IHS Markit
The aggregation of different components into one headline 'PMI'
indicator, designed as an overall barometer of business conditions,
means a considerable amount of the value can be found in the PMI's
component indices that is not always seen in the headline
figure.
Chris Williamson| Chief
Business Economist, IHS Markit
The backlogs of work index from IHS Markit's PMI business
surveys captures the volume of orders that a company has received
but has yet to either start work on or complete.
As such, the index is a useful barometer of the extent to which
companies are struggling to cope with demand and can hence act as a
leading indicator of the expansion of capacity through either
investment or hiring. The index can also provide useful information
about pricing power and developing inflation trends, as well as
corporate earnings.
As such, the backlogs of work index also generates powerful
signals for investment strategy.
Chris Williamson| Chief
Business Economist, IHS Markit
The most common mistake we see in PMI charts is the incorrect
use of the headline PMI for manufacturing. The headline PMI is a
gauge based on a number of survey sub-indices which is designed to
track the overall health of manufacturing. However, often we see
this index incorrectly used as a gauge of manufacturing output
growth, which can give misleading signals - especially when used to
compare manufacturing performance relative to the service sector.
Instead, the manufacturing PMI output index needs to be used.
Chris Williamson| Chief
Business Economist, IHS Markit
The PMI output index is the survey's principal gauge of economic
growth and can provide valuable insights into GDP, service sector
growth and industrial production trends well ahead of official
data. A simple statistical process can be used to produce growth
rate equivalents for comparable official economic data. This
article explains the methodology behind the output index and how to
use the index to track economic growth.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
