The PMI Index
The Econometric Center has partnered with National Association of Purchasing Managers-GA to produce the Georgia Purchasing Manager Index (PMI) Report since 1991. Since Fall 2006, the Center produces the same report for the states of Alabama, Florida, and Tennessee. The study is based on a survey to major companies in those states, analyzes trends and activity of new orders, production, employment, deliveries, purchased materials, finished goods, and commodity prices for the manufacturing sector.
How the Purchasing Managers' Index is Calculated:
The Purchasing Managers' Index is comprised of five variables; New Orders, Production, Employment, Supplier Delivery Time, and Finished Inventory. Survey responses are tallied based on the direction of change from the prior month for each variable. Each response reporting an increase for the month will count as 1, no change or the same will count as .5 and a lower level or decrease for the current month counts as 0. So that, if 60 out of 100 reported an increase, 20 reported no change and 20 lower new orders, then new orders would equal 70 points (60x1 +.5x20). After calculating the points for each variable, the PMI is constructed by equally weighting each variable's points; New Orders (.2), Production (.2), Employment (.2), Delivery Time (.2) and Finished Inventory (.2). The sum of these values equals the PMI. This procedure is referred to as a diffusion index.
How to Interpret the Purchasing Managers' Index:
A reading above 50 is consistent with some combination of participants in which more participants are reporting higher or the same level of activity versus lower from the prior month. For example, 50 up, 5 same and 45 down would equal 52.5 for 100 responses. The further above 50 the stronger the indication of wider spread growth and vice versa below 50.
Of the underlying variables New Orders and Supplier Delivery Time are leading indicators. Production is a coincidental indicator and Finished Inventory and Employment are lagged indicators. The composite PMI of these five variables offers the earliest glimpse of the manufacturing sector's direction. Its components also offer an understanding of what is behind that movement.
Commodity price and Purchased Material Inventory are also collected and separately calculated in the same manner as the above PMI variables.
How Can This information Help You?
- It offers purchasing managers an early warning of a change in the manufacturing sector and the broader economy.
- It confirms whether or not your company's market conditions and commodity pricing are consistent with broader market conditions.
- It offers additional information for a more informed procurement and production scheduling.
Companies that participate on the PMI study receive a free copy of the PMI report. See how it works. If you want to participate in the study or to order a copy of this report, please contact us.