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What is the PMI?

The purchasing managers index surveys are used to gauge activity in manufacturing, construction and services, but how are they compiled and what do they measure?

The purchasing managers’ index is a monthly survey compiled by financial information firm Markit and the Chartered Institute of Purchasing and Supply (CIPS) for the UK manufacturing and services sectors. Markit has also teamed up with other organisations to produce similar surveys for other European countries, such as Germany, France, Italy and Spain.

Economists watch these surveys closely as they look ahead to coming months, while the official data, such as gross domestic product and retail sales, tends to be more backward-looking. Unlike most other business surveys, the PMIs are revised when more data comes in, making them more reliable.

The PMI surveys provide a timely gauge of activity in the manufacturing, construction and services industries. Companies’ purchasing managers are quizzed about their output, new orders, export orders, stock levels, delivery times, output and input prices and employment – whether they are up, down or the same. From their responses, sub-indices are compiled. These indicators are diffusion indices – they measure the degree to which a change in something is diffused – dispersed or spread out – in a particular group.

For the UK manufacturing PMI, five sub-indices are multiplied (output and orders have a higher weight) to create a composite – the headline index. For the services PMI, the headline index and the sub-indices are based on separate questions.

The manufacturing PMI is released on the first working day of every month, construction on the second and services on the third working day, without fail. Markit questions 600 companies for manufacturing and 700 for services, which accounts for around three quarters of the economy’s output.

In the US, the Institute for Supply Management produces a manufacturing PMI that is a composite of five equally weighted sub-indices (new orders, production, employment, supplier deliveries and inventories). The ISM’s services PMI is also a composite index, unlike its UK equivalent. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds