Purchasing Managers Index

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Definition

The Purchasing Manager Index (PMI) assesses the business conditions of the manufacturing and service sectors of a country. The PMI is used to measure the change in the spending of business firms.

About 500 purchasing managers are asked to grade the relative level of business conditions regarding employment, level of inventory and new orders, state of production, and supplier deliveries.

A reading above 50 indicates growth in the sector. Conversely, a reading below 50 points to a contraction.

Importance

The indices (manufacturing and service) may be used as leading indicators of the economy’s health as any increase would suggest a consequent rise in consumption.

Purchasing managers are the ones surveyed since they are perceived to have the most current insight of the companies’ outlook on the economy.

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