PMIs

PMIs

PMIs

PMIs, also known as Purchasing Manager Indexes, are among the most important data you as a trader can acquire to help you make your decisions. At the end of every month, Markit Economics conduct a survey among thousands of purchasing managers. This is done for every advanced economy in the world, and the results are published between two meetings of a country’s central bank, so that traders can predict how things will develop. The results of this survey can show you whether an economy is expanding or not and which trends can be expected. In the rest of this article, we will show you everything you need to know about these indexes and increase your chances for profit! Let’s go!

PMIs | Theory

PMIs reflect the situation in different parts of a country’s economy, most notably in services and manufacturing, but other aspects, like construction, can also be taken into account. Managers interviewed in this survey are from all these branches and they give their estimates on the status of various private companies. They evaluate different parameters such as the number of new orders, situation with the workforce, projected behaviour of the company in the following months etc. A lot of managers involved means a lot of companies are analyzed, and a lot of companies means you can get a pretty good idea about the situation in an economy and Choose the right strategy. But don’t go away yet because we still have to show you how PMIs are calculated. Stay with us!

PMIs | Calculation

PMIs are shown in relation to the 50 level. That means that PMIs higher than 50 show an expanding industry, whereas if the indexes are lower than 50, we have a shrinking industry on our hands. The calculation is done by taking the percentage of answers that report growth and multiplying it by 1, then taking the percentage of answers that do not report any change and multiplying it by 0,5, while all negative reports are multiplied by 0 and thus discarded. These three (or two, depends how you look at it) figures are then added together and what you get is the PMI. Therefore, the closer its value is to 50, the lower the change because a PMI can only be 50 if all managers report absolutely no change (or if exactly the same amounts of them report improvement and deterioration, respectively).

PMIs | Conclusion

To conclude, PMIs are always worth checking out because they are feedback from reliable experts about how a sector of an economy is doing. This is all based on private companies, so there are zero state interventions, which gives you a much clearer insight into the sector’s health. They are always published to give you an idea of what might happen next, so mastering them is one of the most basic tasks for any trader. Invest some time in that, especially if you’re new to all this, and you will have much more success.

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FURTHER READING:

1. The Ascent Of Money: A Financial History Of The World (N. Ferguson, 2008)
2. The Little Book That Beats The Market (J. Greenblatt, 2006)
3. The Alchemy Of Finance (G. Soros, 2007)
4. Japanese Candlestick Charting Techniques (S. Nison, 2009)
5. The Greatest Business On Earth: A Simplified Guide To Trading Commodity Options (J. Prince, 2010)

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Author: Ben Prescott
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