The Importance of PMIs

PMI stands for Purchasing Manager Index and it is a monthly economic release to come out of every advanced economy and based on it traders have an idea if that economy is contracting or expanding, if it is in a recession or expansion, and so on. PMI is published on basis of a survey of thousands of purchasing managers. It is compiled by a company named Markit Economics.  The information is released during the trading month, in between the central banks meetings and market participants are trying to have an educated guess about what the central banks will do when they will meet next time.

The PMI is actually a survey and it’s outcome is interpreted based on the 50 level. Anything above the 50 level is being viewed as positive for that respective economy and therefore for that currency, and anything that is below 50 should be negative.

The information is referring to different sectors in an economy and these sectors are Services and Manufacturing, while in some economies like the UK or Australian ones, the PMI refers to the Construction sector as well. Managers are being asked to rate the company based on different economic factors like the level of new orders, the number of employees, how they are seeing the future of the company in the next six months, and so on.

Based on these answers, an average is made and the outcome is interpreted with the 50 level. Values above 50 show a sector that is expanding while values below 50 show a sector that is contracting.