Context: As per IHS market survey, activities across India’s manufacturing sector remained steady despite high cases of Covid-19 amid the second wave.
More in the news
- India’s manufacturing activity improved marginally in April 2021 but home manufacturing unit new orders and output eased to eightmonth lows.
- According to the IHS survey, purchasing managers’ index (PMI) rose to 55.5 for April after declining to a seven-month low in March at 55.4.
Findings of the Survey
- The economic conditions in manufacturing sector were favorable in April.
- Companies scaled up their production, as there was improvement in the demands by the consumer.
- Quantities of purchases expanded at one of the strongest rates witnessed for over nine years as firms sought to boost inventories.
- Some new export orders surged to the fastest in the market and buying levels expanded at one of the sharpest rates in nine years.
Purchasing Managers’ Index
- It was first defined in 1948 by the Institute of Supply Management (ISM) in the USA.
- It is an index which indicates the current direction of economic trends in the manufacturing and service sectors.
- It summarizes all the market conditions, as viewed by purchasing managers. Whether the market is expanding, staying the same, or contracting is signaled by the index.
- PMI is a based on a monthly survey of supply chain managers, covering both upstream and downstream activity.
- Types of PMI: There are two types of PMI i.e. Manufacturing PMI and Services PMI.
- A combined index is also made using both manufacturing PMI and services PMI.
- It is based on five major survey areas:
- new orders
- inventory levels
- supplier deliveries
- The PMI is calculated as:
- The PMI is a number from 0 to 100:
- When PMI is above 50, it represents an expansion when compared to the previous month;
- When PMI is under 50, it represents a contraction, and
- IPM at 50 indicates no change.
- When PMI of the previous month is higher than the PMI of the current month (as is the case mentioned above), it represents that the economy is contracting.
Importance of PMI
- It is a famous and popular tracked indicators of business used widely across the globe.
- Particularly manufacturing sector is targeted by the index.
- Central banks use the PMI to take decisions on interest rates
- It influencing equity market movements and also impact bond and currency markets.
- By good reading of PMI, suppliers can decide on prices depending on PMI movements.
- The information provided by the PMI about current and future business conditions is very helpful for company decision makers, analysts, and investors.
- PMI is a good indicator of the economic activity in any country. It helps the analysts and investors to forecast GDP growth.
Source: Indian Express