What is Purchase Managers Index? What are its implications for the economy?

Purchasing Managers� Index (PMI) is an indicator of business activity .It can be both in the�manufacturing and services sectors. It is a�survey-based measure�that asks the respondents about changes in their perception of some key business variables from the month before.
It is calculated separately for the manufacturing and services sectors and then a composite index is constructed. For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics.
�Implications for the economy

• The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available
• It is considered a good leading indicator of economic activity
• The manufacturing growth measured by the PMI is a good indicator of industrial output, for which official statistics are released later.
• Central banks of many countries also use the index to help make decisions on interest rates

The variables used to construct India�s PMI for manufacturing sector are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers Delivery Times, Stocks of Purchases and Stocks of Finished Goods. India Services PMI is based on data compiled from variables such as sales, employment, inventories and prices.
 

Topics: GS-III: Indian Economy Issues Relating to Planning