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A survey-based index summarising how business conditions changed compared with the previous month.
Save conceptA purchasing managers’ index summarises businesses’ reports about changing conditions. Questions commonly cover output, new orders, employment, input costs and other operating measures. A manufacturing survey covers a different part of the economy from a services or wider private-sector survey, so the coverage should always be checked before comparing results.
For a basic diffusion index, the percentage reporting an increase is added to half the percentage reporting no change. A reading of 50 indicates no overall change from the previous month. Above 50 indicates improvement and below 50 indicates deterioration. A headline manufacturing PMI combines several survey components with specified weights, rather than simply measuring one company’s output.
Suppose 40% of surveyed businesses report an increase, 40% no change and 20% a decrease. The simple index is 40 plus half of 40, giving 60. The arithmetic describes the distribution of responses. It does not say that output rose 60%, or that every business expanded. A weighted headline measure can involve additional calculation.
measures the value of final production across an economy, whereas a PMI captures reported changes among a defined survey panel. A PMI can provide a timely signal before official figures arrive, but its reading is not a growth percentage. Different sector coverage and question design can produce different signals without either survey being inherently inconsistent.
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