PURCHASING MANAGERS INDEX

  • According to the S&P Global India Manufacturing Purchasing Managers’ Index (PMI), India’s manufacturing sector recorded a slight acceleration in new orders and output which rose to 54.7 in April 2022 from 54 in March 2022.
  • April data showed a rebound in new export orders, following the first contraction for nine months in March.
  • Contraction, in economics, refers to a phase of the business cycle in which the economy is in decline.
  • A contraction generally occurs after the business cycle peaks, but before it becomes a trough.
  • Inflationary pressures meanwhile intensified, owing to rising commodity prices, the Russia-Ukraine war and greater transportation costs.
  • Input prices increased at the fastest pace in five months, while output charge inflation hit a 12-month high.
  • A major insight from the latest results was an intensification of inflationary pressures, as energy price volatility, global shortages of inputs and the war in Ukraine pushed up purchasing costs.
  • On the job front, there was only a mild increase in employment during April 2022.

PMI

  • It is a survey-based measure that asks the respondents about changes in their perception of key business variables as compared with the previous month.
  • It is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • The PMI is a number from 0 to 100.
  • A print above 50 means expansion, while a score below that denotes contraction.
  • A reading at 50 indicates no change.
  • If the PMI of the previous month is higher than the PMI of the current month, it represents that the economy is contracting.
  • It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
  • PMI is compiled by IHS Markit for more than 40 economies worldwide.
  • IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
  • IHS Markit is part of S&P Global.
  • As the official data on industrial output, manufacturing and Gross Domestic Product (GDP) growth comes much later; PMI helps to make informed decisions at an earlier stage.
  • It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
  • IIP covers the broader industrial sector compared to PMI.
  • However, PMI is more dynamic compared to a standard industrial production index.

Significance of PMI

  • The PMI is becoming one of the most tracked indicators of business activity across the world.
  • It provides a reliable expectation of how an economy is doing as a whole and manufacturing in particular.
  • It is a good gauge of boom-and-bust cycles in the economy and closely watched by investors, business, traders and financial professionals besides economists.
  • PMI is also regarded as a leading indicator of economic activity since it is released at the beginning of every month.
  • It comes before the official data on industrial output, core sector manufacturing and GDP growth.
  • The PMI is used by central banks to set interest rates.
  • Besides influencing equity market movements, PMI releases also impact bond and currency markets.
  • A good reading of PMI enhances the attractiveness of an economy vis-a-vis other competing economies.
  • Suppliers can decide on prices depending on PMI movements.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT

About OnPage

Check Also

What to do with spent nuclear fuel?

Syllabus:  Alternate fuel Context: Japan has started releasing treated radioactive water from the beleaguered Fukushima …

Leave a Reply

Your email address will not be published. Required fields are marked *

Get Free Updates to Crack the Exam!
Subscribe to our Newsletter for free daily updates