Purchasing Managers' Index (PMI)

The Purchasing Managers' Index — PMI — is compiled by asking purchasing managers at hundreds of companies a simple set of questions each month: are conditions better, the same, or worse than last month across areas like new orders, employment, supplier delivery times, and inventories? Their answers are then combined into a single number using a method called a diffusion index. A reading above 50 signals that more managers reported improvement than deterioration — in other words, the sector is expanding. A reading below 50 signals contraction.

Because the survey is completed and published quickly — often within the first few days of the following month — PMIs are considered leading indicators, meaning they tend to move before official government data like industrial production or GDP. Economists read a sustained drop below 50 as an early warning that output may be slowing, while a climb back above 50 often signals a recovery gaining traction.

A common confusion: the PMI does not measure the level of activity, only the direction of change. Suppose a reading comes in at 53 one month and 51 the next. Both months show expansion — but the pace of expansion is slowing. Another point worth noting: manufacturing PMI and services PMI are separate releases, and they can move in opposite directions at the same time.