Purchasing Managers Index

The Purchasing Managers Index (PMI) is a widely recognised and extremely valuable indicator of economic activity in the manufacturing sector. It's calculated by surveying purchasing managers from various companies across the country, and provides valuable insight into the health of the industry by measuring key indicators such as Production, New Orders, Employment, and Supplier Deliveries.

Their responses are used to calculate a composite PMI score, which serves as a comprehensive indicator of the sector's overall performance. It's a vital tool for businesses and policymakers, as it provides an early indication of changes in economic activity.

It's considered a leading indicator because it's based on the forward outlook from relevant experts. GDP and CPI are lagging indicators, because they are based on data that's a month old by the time it's released.

Top Three Insights from PMI Data

1. A PMI above 50 indicates expansion in the manufacturing sector, while a reading below 50 signals contraction and possible negative returns in the stock market.
2. The New Orders – Inventories equation is a leading indicator for the direction of next month's PMI value. If the difference between New Orders and Inventories is accelerating, it's likely that the PMI value will also move in the same direction.
3. The rate of change in the New Orders number can also be used as a forward guide to next month's GDP value. If the rate of New Orders is increasing, it's likely that GDP will also increase.

Don't worry about the tedious task of creating these monthly dashboards — I've got that covered for you. All you have to do is look at the heat map, note the PMI value, then decide if the columns above are improving or worsening, and mark it on the checklist.

"The headline PMI figure suggests that the manufacturing sector is still CONTRACTING, and the leading indicators suggest that will continue to WORSEN, along with growth (GDP). This makes it more likely that the NIRD chart will fall away from NIRVANA, and more into DEFLATION territory."