PMI is something I tweet about quite often, so I figured it would be useful to write a blog explaining what it is and why it’s useful.
The Purchasing Manager’s Index is a monthly survey of businesses looking at 5 different factors: production level, new orders, speed of supplier deliveries, inventories and employment level. The managers have three options ‘better’,’worse’ or ‘same’ and the answers are in relation to the previous month.
PMI is then reported on a scale 1-100, with 50+ being expansionary (manufacturing sector is growing) and 50- being contractionary (manufacturing sector is shrinking).
This is a great gauge for seeing how the manufacturing sector is performing and is used widely by investors. If the PMI deviates from analyst’s expectations it is possible that the market will move in response, so it is important for investors to react quickly to the news of PMI or try and get an estimate as close to the real PMI as possible.
The UK reported a PMI of 47.9 today (1st March’13), well below analyst’s original expectations of 51.
What can we draw from this?
Uk manufacturing (and thus GDP) is likely to suffer in Q1 unless there is a substantial increase in growth throughout March. The FTSE should have seen a fall today, however it rose +0.28%. This could be for a wide range of other factors aside from PMI, although it did reach a low of 6,308.56 (-0.82%).
UK 10yr Gilt yields also fell today, indicating increased demand for ‘safer’ assets (as opposed to ‘riskier’ equities) and therefore could indicate investor caution in the coming months.
Keep an eye on my Twitter @BreadEconomics for more information and daily updates.