PMI Full Form

PMI full form is Purchasing Managers’ Index. It has a diffusion index which lets us know about the changes in the market sector, whether the market is expanding, staying stagnant or contracting as viewed by the managers of purchasing. To know more about PMI, read this article.

What is the Full Form of PMI? 

The full form of PMI is the Purchasing Managers' Index. In this index, users get to know about the dominant trends in the economic market. This index further consists of a diffusion index which supplies information on the market sector changes. The diffusion index informs people about the condition of the market, whether it is stagnant, expanding, or contracting. All this information is viewed by the purchasing managers. 

The main aim of the PMI is to provide information about the current and future conditions of the business to the decision-makers, analysts, and investors of the business organization. 

How Does The PMI Work?

The PMI is one of the most important economic tools and is also the leading and most reliable indicator of the economy globally. The manufacturing and service sectors report the Purchasing Managers' Index. Furthermore, every month a hospital PMI is also released.

This index provides insight into the business environment and helps provide business organizations with information about where the market is headed, and what is the current situation of the market. 

The PMI is a survey-based indicator. The Institute of Supply Management releases a compiled survey each month which is then provided to senior executives at more than 400 companies in 19 primary industries. In this survey, questions about business conditions, whether the condition of the market is deteriorating or improving, or whether the market is dormant are provided. 

Survey Areas for PMI

There are five major survey areas on which the Purchasing Managers’ Index (PMI full form) is based : 

•  New Orders 
• Employment 
• Inventory levels 
• Production 
• Supplier Deliveries

A number of 0 to 100 is the headline number of the Purchasing Managers’ Index. 

If a PMI is above 50 then it represents a growth in the market when compared with the PMI of the previous month.  A PMI below 50 signifies that the market is contracting. When the reading is at 50, then we get to know that there is no change in the economic trend in the market. 

Formula and Calculation of the PMI 

• The formula used to calculate the PMI is: 

             PMI = (P1 * 1) + (P2 * 0.5) + (P3 * 0)

Where : 

• P1 stands for the percentage of answers reporting an improvement. 
• P2 stands for the percentage of answers reporting no change.  
• P3 stands for the percentage of answers reporting a deterioration. 

Use of PMI 

The monthly surveys provided by the PMI are very important tools used to make decisions for various areas like management, suppliers, and investors. These monthly surveys also produce PMI and relevant data acquired about the people or business organizations. 

• The monthly  PMI, full form of which is Purchasing Managers’ Index, is used by the management to make key decisions about their businesses. 
• A supplier of parts for a manufacturer follows the PMI to get an estimate of the amount of future demand for its products. The supplier also wants to know how much inventory its customers have currently, which furthermore affects the number of products that its clients have to generate. The information provided by PMI about supply and demand affects the prices that suppliers can charge. So if the new orders of the manufacturers are growing, it may increase customer prices and accept price increases from its suppliers. On the other hand, when new orders get declined, the prices might have to be decreased by the manufacturer and a demand for lower cost for the parts which it purchases is brought up. 

A PMI helps a business calculate its annual budget, forecast the flow of cash, and to also manage staffing levels. 

• As PMI is a leading indicator of economic trends, an investor can use it to their advantage and invest their funds accordingly and smartly. The trend in the PMI has a tendency to predict certain changes in the trend of significant measures of economic activity and output, such as GDP, industrial production, and employment.

What is the Global PMI? 

An economic indicator that is generated from various types of questionnaires sent to manufacturing and service companies in more than 40 countries is defined as the Global Purchasing Managers’ Index (PMI full form). 28,000 companies globally respond to this survey, these companies represent 89% of the global GDP. 

Written By: Mia Singh