When you look at the financial market websites you may have seen this acronym, but do we all know what the Pmi is? Why is it important to know the Pmi when you want to trade?
Pmi means Purchase Managers’ Index, it is an indicator that we find every month on the economic calendar (https://tradingeconomics.com/calendar https://www.investing.com/economic-calendar/), each nation has its own and you can consult them on the web or from the app. The PMI is an index that indicates the economic trends of the various sectors: services, construction and manufacturing.
PMI is the result of a survey of a number of companies, where managers are asked questions about the number of new orders, the level of production, number of employees and future development projects. Pmi provides a general picture of corporate health by executives and analysts who know their business better than anyone else.
PMI is a number from 0 to 100, where the number 50 represents the needle of the scale, if the figure is above 50 it means that survey values indicate the growth of the sector, below 50 means contraction.
Pmi is comparable to a thermometer because it measures nation’s health, when you trade you absolutely have to check this data. Beware of various sectors such as car manufacturers, technology etc… because after pmi you can have surprises on your trade like bullish or bearish directions.
Pmi is published by government and independent bodies, in America it is the Institute for Supply Management (Ism) that sends the monthly survey to companies while in Europe the index is produced by Markit. The survey contains questions about business developments and conditions and changes (for the best/worst/nothing).
Let me give you a practical example of how Pmi index works, a company like Apple makes decisions to produce based on new IPhone orders, so it will have to buy electronic components from its suppliers to meet demand. At the same time, an Apple supplier based on the Pmi makes an estimate of orders and is committed to producing in order to meet demand. This meeting between supply and demand affects prices that supplier will ask the customer.
