Purchasing managers' index (PMI)

The purchasing managers' index is a monthly survey-based indicator that summarizes whether business conditions — new orders, output, employment, supplier deliveries, inventories — are expanding or contracting in the manufacturing or services sector. Because it is based on a survey rather than measured transactions, it is available well ahead of most official government statistics.

Each component is scored from responses asking purchasing managers whether conditions improved, worsened, or stayed the same, and combined into a single index where a reading above 50 indicates expansion and below 50 indicates contraction relative to the prior month; the distance from 50 broadly signals the pace of change rather than an absolute level. This speed of release, often days after the month ends, is what makes PMI a common input to nowcasting models for GDP and other lagging indicators.

PMI is closely watched by investors and policymakers as an early, if imperfect, read on economic momentum alongside labor data such as the unemployment rate, and it can move bond and equity markets, including the yield curve, on release. Its main pitfalls: it measures the direction and breadth of change, not its magnitude, so a PMI of 51 and a PMI of 65 both indicate expansion but very different strengths of it; and as a sentiment-based survey it can be swayed by respondents' psychology during periods of unusual uncertainty, sometimes diverging from harder data such as the consumer price index.