About: Purchasing Manager Index (PMI)

  • The Nikkei India Manufacturing PMI, compiled by IHS Markit, is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies, on various factors that represent demand conditions.

    • Note: It is also sometime referred to as IHS Markit India Manufacturing PMI.

  • PMI measures activity at the purchasing or input stage. It is very different from industrial production which is indicative of actual production. For example, the Index of Industrial Production (IIP) measures output.

  • The PMI is constructed separately for manufacturing and services sector, but the manufacturing sector holds more importance.

  • PMI does not capture informal sector activity.

Significance:

  • The Index is considered as an indicator of the economic health and investor sentiment about the manufacturing sector.

  • PMI is also the earliest indicator of manufacturing activity and economic health, as the manufacturing PMI report for any given month comes out without any delay - either on the last day of that month or on the first day of the next month.

How it is captured:

  • The PMI is derived from survey responses to a series of qualitative questions from purchasing managers in a panel of around 400 manufacturers.

  • PMI is composite index based on five individual sub-indices:

    • New orders

    • Output

    • Employment

    • Suppliers’ delivery times

    • Stock of items purchased

Reading the PMI:

  • A figure above 50 denotes expansion in business activity and anything below 50 denotes contraction.

  • Higher is the difference from this mid-point, greater is the expansion or contraction.

  • The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month's then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

 

News Summary:

  • As the economy opened for business after the strict lockdown, activity in manufacturing sector in September rose at its fastest pace in more than eight years.

  • Data released by the data analytics firm IHS Markit showed PMI for manufacturing rose to 56.8 in September, from 52 in August.

    • A figure of above 50 print signals expansion in manufacturing activity. The greater the number is above 50, the stronger the expansion in activity. 

Sub-indices:

  • New orders and Output:

    • The upturn in total sales was supported by a renewed expansion in new export orders, the first since prior to the escalation of the COVID-19 outbreak.

    • Inputs were purchased at a sharper rate and business confidence strengthened.

  • Employment:

    • One area that lagged behind, however, was employment.

    • Despite strong growth of order book volumes, Indian goods producers signalled another reduction in payroll numbers. Employment has now decreased for six consecutive months.

    • Some companies reported difficulties in hiring workers, while others suggested that staff numbers had been kept to a minimum amid efforts to observe social distancing guidelines.

 

Business confidence:

  • Looking ahead, almost one-third of manufacturers expect output growth in the coming 12 months, against 8% that foresee a contraction.

  • This is the strongest degree of overall optimism in over four years.

 

What it implies:

  • The data of August and September signals back-to-back improvements in the state of the manufacturing sector.

  • Due to loosened COVID-19 restrictions, factories went full steam ahead for production, supported by a surge in new work.

  • While it is too early to signal a turnaround, the numbers suggest that a mild recovery is under way.

 Economics