Purchasing Managers' Index

Also called: PMI · Topic: Economic Data: Census, NSS, Surveys and Statistical Tools · NCERT: Beyond NCERT

Meaning

The Purchasing Managers' Index (PMI) is a monthly survey-based diffusion index. Purchasing managers at firms say whether key business variables (new orders, output, jobs and so on) went up, down or stayed the same compared with the previous month. A reading above 50 means expansion, below 50 means contraction, and exactly 50 means no change.

It matters because it comes out weeks before official data such as IIP. This makes it one of the earliest signals of where manufacturing and services are heading.

Formula (for each component): Component index = (% of firms reporting "higher") + 0.5 × (% of firms reporting "same")

Explanation

How the survey works

• A fixed panel of firms is asked the same questions every month.
• Each question has only three answers: higher, same or lower than last month.
• Firms are not asked how much things changed, only in which direction.
• So PMI is a diffusion index. It shows how widely a change is spread across firms (how many firms feel it), not how big the change is.
• There are three headline PMIs:
• Manufacturing PMI: factories.
• Services PMI: service firms.
• Composite PMI: manufacturing and services combined.

Worked example (one component):

• 40% of firms say new orders are higher, 45% say the same and 15% say lower.
• Index = 40 + (0.5 × 45) = 40 + 22.5 = 62.5.
• 62.5 is above 50, so new orders are expanding.
• The 15% who said "lower" add nothing. Firms saying "same" count for half.

Components of the Manufacturing PMI

Component	Weight
New orders	30%
Output	25%
Employment	20%
Suppliers' delivery times (inverted)	15%
Stocks of purchases	10%

• New orders have the largest weight (30%). Orders received today become production tomorrow, so this is the most forward-looking part.
• Why suppliers' delivery times are inverted:
• When demand is strong, suppliers are busy.
• So they take longer to deliver.
• So a longer delivery time is read as a sign of strength, and it pushes the PMI up.
• This is the opposite of what a beginner might expect, which makes it a common exam trap.

Illustrative example (headline number, made-up component readings):

• Suppose new orders = 60, output = 55, employment = 50, suppliers' delivery times (already inverted) = 50, stocks of purchases = 50.

• PMI = 0.30×60 + 0.25×55 + 0.20×50 + 0.15×50 + 0.10×50 = 18 + 13.75 + 10 + 7.5 + 5 = 54.25 → expansion.

• Notice how the strong new orders reading pulls the headline figure up the most.

Reading the number correctly

• >50 = expansion, <50 = contraction, 50 = no change compared with the previous month.
• Trap: direction, not level.
• PMI falls from 58 to 54.
• This does not mean activity shrank.

• 54 is still above 50, so activity grew. It only grew more slowly than before.

• Distance from 50 tells you roughly how widespread the change is:

• 51 means expansion that only a few more firms report.

• 60 means expansion that many firms report.

• PMI compares with last month (m-o-m), not with the same month last year. Series like CPI and IIP are quoted year-on-year (y-o-y), so PMI does not carry the base effect (growth that looks high or low only because last year's figure, the "base", was low or high).

What makes PMI rise or fall

• Rises when more firms get new orders, raise output, hire more staff and wait longer for supplies (a sign of busy suppliers).
• Falls when demand weakens: fewer orders, output cuts, job cuts, faster deliveries because suppliers are idle.
• One-off shocks such as the COVID lockdown in 2020-21 can push it sharply below 50.

In India

• Main series: the HSBC India Manufacturing PMI, HSBC India Services PMI and HSBC India Composite PMI.
• Who compiles it: S&P Global, a private data firm. The Government of India does not compile it.
• Panel size: about 400 firms each for manufacturing and services.
• Release timing:
• A flash (early) estimate comes out in the middle or late part of the month.
• The final figure comes out early the next month.

• So PMI gives a picture of a month weeks before official data such as the IIP (Index of Industrial Production), released by MoSPI.

• Compare with the official index:

• MoSPI released a new IIP series with base year 2022-23 on 1 June 2026 [4].
• IIP grew 5.1% in May 2026 [5].

• IIP measures actual output. PMI measures firms' opinions about direction. So the two can give different signals in the same month.

• Who uses it: the Monetary Policy Committee (MPC), the RBI body that sets the repo rate (the rate at which the RBI lends money to banks for a short time). GDP data come out only after about two months. So the MPC reads PMI together with GST/e-way bills, power demand and RBI's own surveys to judge demand early.

• Limitation: it is a private survey of a small panel of mostly formal-sector firms (registered firms that follow labour and tax rules). It under-represents India's large informal and rural economy.

Don't confuse with

• Index of Industrial Production (IIP): PMI is a private opinion survey that shows the direction of change (50 = no change). IIP is an official MoSPI index of measured output, now with base year 2022-23 [4]. It is a coincident indicator and is quoted y-o-y.
• Index of Core Industries (ICI): the ICI measures actual output of nine core industries (base 2022-23, with iron ore added) [3]. PMI covers the wider manufacturing and services sectors through survey answers.
• RBI's Industrial Outlook Survey (IOS) and OBICUS: these are RBI's own surveys of manufacturing firms. OBICUS has been quarterly since 2008 and measures capacity utilisation (how much of the available machinery is actually used) [1]. PMI is monthly and run by S&P Global, not the RBI.
• RBI Consumer Confidence Survey (CCS): the CCS asks households, and its neutral mark is 100 [2]. PMI asks firms, and its neutral mark is 50.

Prelims Hooks

• PMI is a monthly diffusion index: >50 = expansion, <50 = contraction, 50 = no change compared with the previous month.
• Formula: (% saying higher) + 0.5 × (% saying same). Example: 40% higher, 45% same → 62.5.
• India's PMI is the HSBC India PMI, compiled by S&P Global (not MoSPI or RBI) from panels of about 400 firms each. The Composite PMI combines manufacturing and services.
• Largest weight in the Manufacturing PMI: New orders (30%). Suppliers' delivery times (15%) are inverted, so slower deliveries raise the PMI.
• Trap: a fall from 58 to 54 means slower growth, not contraction. PMI shows direction, not level.
• PMI new orders is a leading indicator. IIP and core industries are coincident. Unemployment and CPI inflation are lagging.

Mains Points

• An early signal for policy in real time:
• GDP arrives with a lag of about two months, and IIP also comes out later.

• PMI's flash and final figures give the MPC and the government an early read on demand, so they can respond to a slowdown sooner (GS-III: growth, monetary policy).

• Useful but narrow, so read it with official data:

• PMI is an opinion survey of a small, mostly formal, urban panel. It shows direction, not size.
• It can differ from IIP, which measures actual output. The informal and rural economy is poorly covered.

• A sound analysis cross-checks PMI with IIP (base 2022-23) [4], core industries [3], GST/e-way bills and power demand.

• Credibility of private vs official statistics:

• A private index that comes out early and on time fills a gap left by slower official data.
• It also shows why India's official statistics need timely releases and regular base-year revisions (as with IIP and ICI moving to 2022-23) [3][4]. Without these, policy ends up relying on small private surveys.

Related concepts

• Time series
• Trend
• Seasonality
• Cyclicity
• Compound annual growth rate
• Leading indicators

Read more

• Reading economic data: time series, growth rates and high-frequency indicators