3,882
edits
Purchasing Managers Index: Difference between revisions
no edit summary
No edit summary |
No edit summary |
||
| Line 2: | Line 2: | ||
Investors can also use the PMI to their advantage because it is a leading indicator of economic conditions. The direction of the trend in the PMI tends to precede changes in the trend in major estimates of economic activity and output, such as the GDP, Industrial Production, and Employment. Paying attention to the value and movements in the PMI can yield profitable foresight into developing trends in the overall economy.<ref>https://www.investopedia.com/terms/p/pmi.asp</ref> | Investors can also use the PMI to their advantage because it is a leading indicator of economic conditions. The direction of the trend in the PMI tends to precede changes in the trend in major estimates of economic activity and output, such as the GDP, Industrial Production, and Employment. Paying attention to the value and movements in the PMI can yield profitable foresight into developing trends in the overall economy.<ref>https://www.investopedia.com/terms/p/pmi.asp</ref> | ||
The PMI is a survey-based indicator of business conditions, which includes individual measures (‘sub-indices’) of business output, new orders, employment, costs, selling prices, exports, purchasing activity, supplier performance, backlogs of orders and inventories of both inputs and finished goods, where applicable. The surveys ask respondents to report the change in each variable compared to the prior month, noting whether each has risen/improved, fallen/deteriorated or remained unchanged. These objective questions are accompanied by one subjective ‘sentiment’ question asking companies whether they forecast their output to be higher, the same or lower in a year’s time. <ref>https://www.spglobal.com/marketintelligence/en/mi/products/pmi-faq.html</ref> | |||
=== Formula: === | |||
PMI data are presented in the form of a diffusion index, which is calculated as follows | |||
where: | |||
* P<sub>1</sub> = Percentage number of answers that reported an improvement. | |||
* P<sub>2</sub> = Percentage number of answers that reported no change. | |||
* P<sub>3</sub> = Percentage number of answers that reported a deterioration. | |||
Because of P<sub>1</sub> + P<sub>2</sub> + P<sub>3</sub> = 100, | |||
Thus, if 100% of the panel reported an improvement, the index would be 100.0. If 100% reported a deterioration, the index would be zero. If 100% of the panel saw no change, the index would be 50.0 (P<sub>2</sub> * 0.5).Therefore, an index reading of 50.0 means that the variable is unchanged, a number over 50.0 indicates an improvement, while anything below 50.0 suggests a decline. <ref>https://en.wikipedia.org/wiki/Purchasing_Managers%27_Index#cite_note-19</ref> | |||
== References: == | |||