Purchasing Managers' Index (PMI)(By Mack Wilowski)

The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.

The headline PMI is typically a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change. The further away from 50 the greater the level of change.

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Why is 'Purchasing Managers' Index (PMI)' the Term of the Day?

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Yesterday, the Institute for Supply Management released the latest reading of its Non-Manufacturing PMI for the United States, tracking nationwide business activity across the services sector. The index reading unexpectedly rose to 56.9 in August, from 56.7 in July. Analysts had expected a decrease to 55.1. The reading marks the strongest performance in the services sector in four months, driven by higher business activity and employment growth.

Relative to 2021, business activity across both manufacturing and service-oriented industries has declined as high inflation, supply chain bottlenecks, and rising interest rates affect the economy. The slowdown has been particularly pronounced in the goods-producing sector. Last month, S&P Global’s U.S. Manufacturing PMI declined to 51.5 in August, compared to a pandemic-era peak above 63 during the summer of 2021. Any reading below 50 indicates a contraction in business activity.

An economic slowdown, exacerbated by the Federal Reserve’s ongoing tightening of monetary policy, could lead to greater declines in business activity over the upcoming months. Persistently high inflation might also further depress consumer spending on goods and services, leading to a prolonged slowdown in business activity.

-Mack