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Purchasing Managers' Index definition. National Association of Purchasing, PMI index represents a summary report of survey among managers in the field of industry. PMI index is used to measure a change in production output, the number of new industrial orders, inventories as well as operation speed of suppliers. The goal of this economic indicator is to provide the information about shaping of price policy, tendencies in business and economy. Purchasing Managers' Index (otherwise called NAPM) is measured as percentage from 1 to 100.
PMI formula:
PMI = 0.30∙(New Orders) + 0.25∙(Production) + 0.20∙(Employment) + 0.15∙(Supplier Deliveries) + 0.10∙(Inventories)
Respondents answer simple questions. Choice of answers is usually limited by “yes”, “no” and “no change”. Taking into account the structure of questions, it is hard to escape a conclusion that psychological factors heavily impact index value, which can distort figures.
Questionnaire includes following positions:
- Production;
- Nеw ordеrs – number of new orders made by clients;
- Nеw еxport orders;
- Ordеr bасklоgs – portfolio of unfilled orders;
- Соmmоdity рriсеs;
- Inventories of purchased materials – purchased material and production stocks;
- Impоrts (Nеw impоrt оrdеrs);
- Employment;
- Vеndor dеliveries (Delivery time);
- Itеms in shоrt suррly (Supplier) .
PMI is published at 10-00 a.m EST (Washington) or at 6 p.m MSK (Moscow) by National Association of Purchasing Managers. Date of publication: usually on the first day of month.
Impact on the Forex market
PMI has a limited impact on the Forex market. Despite this fact, over the long time of its measurement (40 years), PMI had been performing as a rather reliable indicator to forecast trade cycles. It was found that high values of PMI (over 50%), peak of trading cycle is reached for about 7 months. If PMI value is low (under 50%), decline f trading cycle is reached approximately by 3rd month. Also psychological threshold in 44% is important. Should index get below this value, it tells about beginning of recession that can negatively impact on pace of GDP growth. As a rule, recession is accompanies by PMI level on 34-35%. If the index manages to hold above 44%, recovery will take faster paces.
PMI is related to anticipating indicators and is often analyzed together with other fundamental figures, in particular, with Industrial Production Index and Prices diffusion index.
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