PMI: Purchasing Managers Index Explained

The Purchasing Managers Index is a monthly survey of business executives, typically purchasing and supply chain managers, in the manufacturing and services sectors. They are asked simple questions about whether new orders, output, employment, and inventories increased, decreased, or stayed the same compared to the previous month. Those answers get compiled into a single diffusion index number, usually released by organizations like S&P Global or ISM depending on the country.

The number itself is easy to read: 50.0 is the dividing line. A reading above 50 means the sector being surveyed is expanding, more businesses reported growth than contraction. A reading below 50 means contraction, more businesses reported things getting worse than better. The distance from 50 matters too, a reading of 58 signals much stronger expansion than a reading of 51, even though both are technically "growing."

PMI is considered a leading indicator because it is based on business managers' real-time perceptions of orders and activity, collected and published within days of month-end, rather than waiting weeks or months for official government statistics like GDP to be compiled from actual transaction data. By the time GDP confirms an economy is slowing, PMI readings have often already been signaling that slowdown for two or three months. This is why a weak PMI print can move currency and equity markets sharply even though it is "only" a survey.

Traders typically watch both the manufacturing PMI and the services PMI, since in most developed economies services make up a much larger share of GDP than manufacturing. A composite PMI that blends both gives a fuller picture. It is also worth remembering that PMI reflects sentiment and perception, so it can occasionally diverge from what hard data eventually shows, which is why it is best read alongside other indicators rather than in isolation.