A survey-based indicator measuring the prevailing direction of economic trends in manufacturing and services. PMI readings above 50 indicate expansion, while readings below 50 signal contraction.
What PMI Measures
The Purchasing Managers' Index is based on monthly surveys of private sector companies. Purchasing managers are asked about new orders, output, employment, supplier delivery times, and inventories. The data is compiled into a diffusion index where 50 is the neutral line: above 50 signals expansion, below 50 signals contraction.
Major PMI releases include the ISM Manufacturing Index index in the U.S., S&P Global PMIs for the eurozone and UK, and the Caixin PMI for China.
Why PMI Matters for Forex
PMI is valued as a leading indicator because it captures business conditions in near real time. Since purchasing managers are among the first to see changes in supply chains, their responses can foreshadow shifts in Gross Domestic Product (GDP) and Industrial Production months in advance.
A PMI reading significantly above or below 50 can move currency pairs, especially when it diverges from expectations. The manufacturing PMI tends to impact commodity currencies like the Australian Dollar (AUD), while services PMI is more important for service-oriented economies like the UK and U.S.
Reading PMI Data
Traders focus on the direction of change as much as the absolute level. A PMI of 52 falling from 56 may be more bearish than a PMI of 49 rising from 45.
Related Terms
ISM Manufacturing Index
A monthly survey of U.S. purchasing managers published by the Institute for Supply Management. Readings above 50 indicate manufacturing expansion, while readings below 50 signal contraction.
Gross Domestic Product (GDP)
The total monetary value of all finished goods and services produced within a country during a specific period. GDP is the broadest measure of economic activity and a key driver of currency valuations.
Industrial Production
A monthly measure of output from the manufacturing, mining, and utilities sectors. Industrial production data helps gauge the strength of a country's productive economy and can influence currency direction.
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