Purchasing Managers' Index (PMI)

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Definition of 'Purchasing Managers' Index (PMI)'

The Purchasing Managers' Index (PMI) is a composite indicator of economic activity derived from monthly surveys of private sector companies. The survey covers a range of indicators including output, new orders, employment, supplier deliveries and inventories. The PMI is widely used as a leading indicator of economic activity and is often seen as a precursor to changes in GDP.

The PMI is calculated by taking the average of five sub-indexes, each of which is based on a weighted average of responses to questions about the current state of business activity. The sub-indexes are:

* New Orders: This sub-index measures the level of new orders received by businesses.
* Output: This sub-index measures the level of output produced by businesses.
* Employment: This sub-index measures the level of employment in the private sector.
* Supplier Deliveries: This sub-index measures the time it takes for suppliers to deliver goods to businesses.
* Inventories: This sub-index measures the level of inventories held by businesses.

The PMI is a useful indicator of economic activity because it is based on a broad range of data from private sector companies. This makes it a more timely and accurate indicator of economic conditions than official government statistics, which can often be delayed by several months.

The PMI is also a leading indicator of economic activity, meaning that it tends to change before other economic indicators. This makes it a useful tool for forecasting future economic conditions.

The PMI is published by a number of different organizations, including the Institute for Supply Management (ISM) in the United States and the Confederation of British Industry (CBI) in the United Kingdom. The PMI is often used as a benchmark for comparing the performance of different economies.

The PMI is a valuable tool for businesses and investors alike. It can be used to track the health of the economy and to make informed decisions about business strategy.

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