What is PMI in Manufacturing?

question-mark-2123966_960_72024When researching the manufacturing industry, you may come across the term “PMI.” An acronym for Purchasing Managers’ Index, it’s used as metric for measuring the economic health and viability of the manufacturing industry. To learn more about PMI and how it’s used, keep reading.

Overview of PMI

So, how is PMI calculated? Basically, organizations send monthly surveys to private manufacturing companies, asking them a series of questions about their respective orders, revenue, costs, etc. Roughly 400 purchasing managers are surveyed during this process. The surveys cover several specific areas, including production level, new orders, speed of supplier deliveries, inventories, order backlogs and employment. Using this information, a PMI is created for the respected month.

The first PMI report was produced during the mid-to-late 1950s. Since then, it’s become an instrumental tool used by manufacturing companies and investors in identifying the financial health of the American manufacturing industry.

The PMI uses a scale from 0 to 100, with 100 indicating perfect financial health. Generally speaking, however, any PMI over 50 indicates positive growth and expansion, which is a positive sign. If the PMI rating is below 50, on the other hand, it indicates the market is shrinking or contracting, which is a negative sign.  In October, the American manufacturing industry was given a PMI rating of 54.3. This marked a nine-month high for the country’s manufacturing industry, signaling strong growth as we enter the fourth quarter of 2017.

Although they are surveys, PMI is created through factual information only. The surveys do not ask manufacturing purchasing managers for their personal opinions or thoughts; it only asks for factual, statistical information pertaining to their respective operations.

Markit and Institute for Supply Management

The organizations responsible for creating the PMI are Markit and the Institute for Supply Management (ISM). The ISM is responsible for creating the metrics used to calculate the PMI, whereas the Markit Group uses the ISM’s metrics on global projects. Together, these two organizations create the monthly PMI for the American manufacturing industry.

As explained on the official Markit website, PMI is “is based on monthly surveys of carefully selected companies representing major and developing economies worldwide.” Markit further explains that PMI releases contain two primary sections: the PMI number (ranges from 0 to 100), and compartment-level data.

Hopefully, this gives you a better understanding of the PMI and how it relates to the manufacturing industry.