PMI is an economic indicator, used to measure the health of a particular sector within an economy. In the UK, for instance, Markit produce a PMI for the manufacturing, services and construction industries.
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PMI definition
Forex trading involves risk. Losses can exceed deposits
What does PMI stand for?
PMI stands for purchasing managers index.
How is PMI used?
Often, PMI is a useful proxy for GDP, as PMI releases can be timelier and sometimes give a better snapshot representation of an economy than quarterly GDP figures.
Despite the drop in manufacturing’s prominence in many economies, manufacturing PMI is still viewed as an important economic indicator for many analysts and traders.
How do traders use PMI?
PMI is used mostly by businesses to estimate future demand for their products. Traders and investors, though, can use it just like GDP — showing how prosperous an economy is at a single point in time, and adjusting their strategies accordingly.
How is PMI calculated?
PMI is based on five key indicators:
- New orders
- Inventory levels
- Production
- Supplier deliveries
- Employment environment
The information is derived from a survey that is sent to purchasing managers in a particular economy. Their responses are then collated into a figure that represents growth or contraction in a sector.
A PMI of 50 means that the sector in question has not changed when compared to the previous month. If PMI is more than 50 then the sector has expanded, and if it is less than 50 the sector has contracted.
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