Purchasing Managers’ IndexPMI
A purchasing managers’ index is a monthly survey of companies about orders, output, employment and prices. Readings above 50 indicate expansion compared with the previous month, below 50 contraction. Well-known versions include the ISM Manufacturing and Services PMIs in the US and S&P Global’s PMIs.
PMIs are among the first hard signals of each month's economy. They come from surveys of purchasing managers — people who see orders, prices and hiring before they show up in official data. That early timing is why markets react to them.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 4 min
- Also called
- PMI, ISM Manufacturing PMI, S&P Global PMI
- Updated
The PMI in plain words
A PMI is built from diffusion indexes calculated from survey answers.1
For the ISM, a reading above 50 indicates that manufacturing is generally expanding and below 50 generally declining.2
Diffusion indexes tend to behave like leading indicators.1 See Economic Indicator.
How a PMI is built, step by step
Survey purchasing managers
Companies report whether things like orders, output and employment are higher, the same or lower than last month.
Compute a diffusion index
The index is the percentage reporting improvement plus half the percentage reporting no change.1
Do it for each question
A diffusion index is calculated for each survey question.1
Combine into the headline
ISM’s headline PMI combines five indexes with equal weights.1 Other providers, such as S&P Global, weight their components differently.
Read against 50
Above 50 means expansion, below 50 contraction.1
Watch the components
For supplier deliveries, a reading above 50 indicates slower deliveries.1
Worked examples
Example 1 — Computing a reading
55 = expansionOf the firms surveyed, 30% report higher new orders, 50% the same and 20% lower.
| Higher | 30 |
| Half of 'same' | 0.5 × 50 = 25 |
| Diffusion index | 30 + 25 = 55 |
A diffusion index counts the share of “better” answers plus half of the “same” answers.1
Example 2 — A contraction reading
45 = contractionNow 20% report higher, 50% the same and 30% lower.
| Higher | 20 |
| Half of 'same' | 25 |
| Diffusion index | 45 |
A reading below 50 indicates that manufacturing is generally declining.1
Example 3 — Slower deliveries
Slower deliveriesThe supplier deliveries index reads 58 while orders are rising.
| Supplier deliveries | 58 |
| Meaning | Deliveries are slowing |
For supplier deliveries, a reading above 50 indicates slower deliveries.1 That often happens when demand is strong.
ISM vs S&P Global PMIs (US manufacturing)
| Aspect | ISM | S&P Global |
|---|---|---|
| Publisher | Institute for Supply Management | S&P Global |
| Headline weights | Five indexes, equal weights | Five indices, new orders 30% |
| 50 line | Above 50 = expanding | Above 50 = improvement on the month |
| Coverage | US manufacturing and services | Many countries and sectors |
How traders use PMIs
Early read on growth
PMIs arrive before official data such as Gross Domestic Product.
Rate expectations
Strong or weak readings shift views on Central Bank policy.
Inflation signals
Price components hint at Inflation pressure.
Recession watch
Long runs below 50 can point to a Recession.
Advantages and disadvantages
Advantages
- Timely: published early each month.
- Simple to read against 50.
- Comparable across countries.
- Components show orders, prices and jobs.
Disadvantages
- Surveys measure direction, not size of change.
- Sentiment can swing on news.
- Different publishers use different methods.
- Can diverge from official data.
Going deeper
Read as far as you need. Each level builds on the one before it.
The 50 line
Beginner
Above 50 means manufacturing is generally expanding; below 50 generally declining.1
Diffusion indexes
Intermediate
Publisher differences
Advanced
ISM’s headline combines five indexes with equal weights.1 Other providers, such as S&P Global, use their own weights, so two PMIs can differ in the same month.
Common mistakes
Reading 50+ as strong growth
Above 50 shows expansion, not how fast.
Ignoring the trend
A fall from 58 to 52 is still expansion but slowing.
Mixing up publishers
Comparing ISM and S&P Global readings as if identical.
Misreading supplier deliveries
Higher readings there mean slower deliveries.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- PMIs are monthly surveys of purchasing managers.
- Above 50 = expansion, below 50 = contraction.
- Each index = % better + half of % unchanged.
- ISM and S&P Global calculate their headlines differently.
- PMIs are timely, leading-style signals.
Frequently asked questions
When are PMIs released?
Is a PMI of 50 good or bad?
Why do markets move on PMIs?
Further learning
- Economic Indicator
Where PMIs fit among macro data.
- Leading and Lagging Indicators
Why PMIs lead.
- Gross Domestic Product
The official growth data PMIs anticipate.
- Recession
How weak PMIs can signal a downturn.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Institute for Supply Management. ISM Manufacturing PMI Report (opens in a new tab) Checked .
- Federal Reserve Bank of Chicago. Understanding the Seventh District and U.S. Economies with Purchasing Managers’ Surveys (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.