Consider the following statements in context of Purchasing managers index PMI PMI is an indicator of...........

Economic Affairs Make in India

Download Solution PDF

Consider the following statements in context of Purchasing managers index (PMI) :

PMI is an indicator of business activity.
It is released by RBI for india.
It is based on annual survey.

Which of the statements given above is/are correct?

1 only

1 and 3 only

2 and 3 only

All of the above

छोटे Courses बड़े Results

Master Make in India

Prepare through Micro-courses

Try Now

Explanation:

Explanation

Context-The headline seasonally-adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) fell from 51.4 in September to a two-year low of 50.6 in October.

What is a PMI?

PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity -- both in the manufacturing and services sectors. It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before. It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

PMI for India

For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics (for the US, it is the ISM).
The variables used to construct India’s PMI for manufacturing sector are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers? Delivery Times, Stocks of Purchases and Stocks of Finished Goods.
Similar variables are used for the construction of services PMI. A manufacturing PMI and a services PMI are prepared and published by the two.
The Nikkei and Markit economics websites says that PMI data are based on monthly surveys of carefully selected companies.

How is the PMI derived?

The PMI is derived from a series of qualitative questions. Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

How does one read the PMI?

A figure above 50 denotes expansion in business activity.
Anything below 50 denotes contraction. Higher the difference from this mid-point greater the expansion or contraction.
The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
A reading at 50 indicates no change.

What are its implications for the economy?

The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity. Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates.

What does it mean for financial markets?

The PMI also gives an indication of corporate earnings and is closely watched by investors as well as the bond markets. A good reading enhances the attractiveness of an economy vis-a- vis another competing economy. For instance, India’s manufacturing activity as measured by the PMI expanded to 57.6 5 in July, while for China it dipped for the first time in over a year.