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Q) Sir, the term PMI is very commonly used in the media these days. What exactly is PMI? A) PMI stands for Purchasing Managers’ Index. It is a very important and popular indicator of the economic health of the manufacturing sector. Q) Could you let us know how PMI originated? A) The first PMI report was published for the US in 1948 by the Institute for Supply Management (ISM). Since then, the ISM has been releasing the PMI on the first business day of every month. The main operator and owner of the Purchasing Managers Index (PMI) series outside the US is the Markit Group, a global financial information services company. Q) How is this index determined or calculated? A) The PMI is a composite of five “subindicators”, and each one has a weight assigned to it. Following are the sub-indices and the respective weights: • Production level (.25) • New orders (from customers) (.30) • Supplier deliveries - (are they coming faster or slower?) (.15) • Inventories (.10) • Employment level (.20) These sub-indices provide unrivalled insight into key economic drivers such as inflation, Gurumantras: PMI Purchasing Managers Index exports, employment and inventories. They are determined by surveying many purchasing managers around the respective country or economy (over 400 in case of the USA), chosen on the basis of their geographical and industry diversifications. The reason behind surveying purchasing managers for this purpose is that they are among the first to know when trading conditions, and therefore company performance, change for the better or worse. The survey is very simple and the calculation, even more so. The purchasing managers answer each question with one of only three options: “better”, “same” or “worse”, keeping their respective industry in mind. To determine the <strong>final</strong> PMI, half of the percentage of the respondents that report no change in the conditions with respect to the previous month is added to the percent of respondents that report better conditions. Putting it more clearly, if x% of the respondents report better conditions and y% report no change as compared to the previous month, the PMI figure is (x + 0.5*y).It is obvious that the <strong>final</strong> figure would lie between 0 and 100. Q) What is the significance of PMI? A) A thumb rule suggests that a PMI of over 50 indicates expansion of the manufacturing sector as compared to the previous month, and vice versa. As is clear from the survey technique, the PMI is a sentiment reading of the purchasing managers. 23 NOVEMBER 2012
Another important fact is that though it seems that the index concerns only the manufacturing sector, it is widely believed that it reads the economy as a whole. This is true even for the countries like the USA and India, where the services sector is predominant. The reason for this is that usually, the beginning as well as the end of recessions is deep-rooted in the manufacturing industry. So the health of the general economy is closely related to that of the manufacturing sector. Thus PMI also stands as a good indicator of future GDP levels. An index level of 42 is considered as a benchmark for GDP expansion. If the PMI falls below 42%, it indicates a strong possibility of a recession in the near future. Not only is the value of the index, but its rate of change also very important. A sharp drop in the index in a short time, even if the figures are above 50, could be a bad sign. Q) What makes PMI so unique? A) PMI has several unique benefits, namely • Apart from providing a snapshot of the health of the overall economy, it also gives an insight in the subindicators like employment and inventories. • It is a very timely index and is also very quick, much faster than the equivalent official data. Thus it provides the first indication of economic trends each month. • The PMIs around the world survey over 20,000 different companies every month, and thus representing the most comprehensive global economic survey available to professional investors. • The data is produced using the same methodology in over 20 countries, including all emerging markets. Thus PMI serves as a means for international comparisons. • The PMI represents reliable factual data on actual business conditions rather than opinion or confidencebased measurements. Q) Are there any limitations of PMI? A) Only a few, like • The survey is, as compared to other indicators, very subjective in its data retrieval. • PMI alone is not nearly as effective. It is advisable to use it in context with more data-driven indicators like GDP. REFERENCES [1]. http://www.investopedia.com/university/ releases/napm.asp (last visited on 23rd October 2012) [2]. http://www.markit.com/en/products/rese arch-and-reports/pmis/pmi.page (last visited on 23rd October 2012) [3]. http://www.investopedia.com/terms/p/p mi.asp#axzz2A1w2AjuW (last visited on 23rd October 2012) [4]. http://en.wikipedia.org/wiki/Purchasing_ Managers_Index (last visited on 23rd October 2012) 24 NOVEMBER 2012
Page 2 and 3: CONTENTS Editorial Director’s Mes
Page 4 and 5: Dinesh Kumar Likhi, Prof. Koilakunt
Page 6 and 7: 10-Step Methodology for Deploying T
Page 8 and 9: human resource management systems d
Page 10 and 11: Operations Strategy Dr. Dinesh Likh
Page 12 and 13: People are assets whose value can b
Page 14 and 15: References [1]. Robert H. Hayes and
Page 16 and 17: environment including energy effici
Page 18 and 19: Dark Ages of Manufacturing Industry
Page 20 and 21: Also the policy makers do not bothe
Page 22 and 23: product to the government at a frac
Page 24 and 25: various public and private sector c
Page 26 and 27: Mr. J L Aggarwal: The steel industr
Page 30 and 31: DEBATE- Is a Strong Manufacturing B
Page 32 and 33: Summer Internship Prashant Meshram
Page 34 and 35: Summer Internship Abhijeet Srivasta
Page 36 and 37: learnt by observing Toyota over the
Page 38 and 39: Crossword Across 1. Type of manufac
Page 40 and 41: Solution to Crossword Team Strive 3

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