Understanding PMI’s Impact on Markets

Understanding PMI’s Impact on Markets Index, or PMI, is an important leading economic indicator that gives investors valuable insights into the state of a country’s economy. It is a composite gauge that takes into account multiple aspects of manufacturing and services, including new orders, production levels, employment, supplier deliveries, and inventories. It is produced by S&P Global (previously IHS Markit) on a monthly basis, with a “flash” estimate figure released towards the end of the reference month using responses from around 85% of the survey pool, and a final figure being released at the beginning of the next month incorporating all responses received.

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PMI is closely followed by traders, investors, economists, policymakers, and businesses because it offers early insight into the health of a nation’s economy. It is based on monthly surveys conducted among purchasing managers in various industries about various business variables, such as new orders, production levels, supplier deliveries, and inventory levels. These data points are then used to create the PMI, which is typically presented as an index between 0 and 100, with values above 50 indicating expansion and values below 50 indicating contraction.

In addition to its use as an economic indicator, PMI data is also widely followed by the bond markets because it can give insight into the potential for inflation in a country, which would negatively affect prices for fixed-income assets like bonds. The information contained in the PMI is collected from a wide range of participants, from manufacturers to suppliers to banks, with each having their own unique responsibilities and methodologies for responding to the survey.