How to Read the PMI (Purchasing Managers' Index)

The PMI (Purchasing Managers' Index) is an economic indicator created by surveying firms' purchasing and materials managers each month. It combines responses on items like new orders, production, employment, inventories, and supplier delays, asking whether each got "better / the same / worse" than the prior month.

Its distinctive feature is that it is a diffusion index that asks about "direction" rather than actual sales figures. So it can quickly capture the mood on the ground before the statistics are tallied, showing the flow of the economy at a relatively early point.

More important than the number is the threshold by which you read this index.

The heart of the PMI is "50."

Above 50: expansion (improvement) versus the prior month Below 50: contraction (deterioration) versus the prior month Exactly 50: no change

What to watch is that it is "versus the prior month." A PMI of 48 does not mean "the economy is bad"; it means "it got worse than last month." Conversely, 51 means "it got a little better than last month."

Also, the further from 50, the greater the intensity of change. For example, 55 signals a stronger improvement than 52.5. So the market looks not only at the absolute number but also at "whether it crossed the threshold" and "whether it rose from last month."

There are two representative institutions that publish PMIs.

The ISM (Institute for Supply Management) is the originator of the U.S. manufacturing survey, and the U.S. ISM Manufacturing and Services PMIs draw particular attention.

S&P Global (which merged with IHS Markit in 2022) publishes PMIs for more than 30 countries worldwide and was the first to develop a services PMI.

Even for the same country's PMI, the two institutions' survey targets and methods differ, so the figures can differ. That is why it is important to check which institution's PMI it is. For reference, the ISM's new orders index is also a component of the Conference Board leading economic index (LEI) seen earlier.