The ABCD Of Purchasing Managers Index (PMI) And Recent Trends

Indian economy is undergoing a slowdown. The recently released data of Purchasing Manager’s Index (PMI) has further shattered the hopes of revival of business activity in the current quarter. For August, 2017, PMI stood at 49.

The ABCD of PMI

The Purchasing Manager’s Index is a tool for measuring the economic health of manufacturing sector of the economy. Essentially PMI is comprised of five indicators: Inventory Levels, New Orders, Supplier Deliveries, Production and Employment Environment.

PMI acts as a handy tool to make informed decisions based on the market scenario. It is an outcome of monthly survey data collected from around 300 companies. A PMI of more than 50 represents sector expansion in comparison to previous month. A PMI of less than 50 indicates contraction and PMI equal to 50 shows no change.

The Recent Down Swing

Major economic reforms measures including Demonetization, Implementation of new Tax regime (GST) have been taken by the government. The falling GDP figures are indicative of the downtrend in the economy and now the PMI data cements the fact that the growth numbers shall continue to be bleak.

GST has impacted the new work orders and business activity. Its reflection is clearly visible on PMI which was registered at 45.9 for the month of July 2017. The firms in July had indicated that production, orders and purchasing were postponed for the lack of clarity about the new TAX regime.

The Road Ahead

Experts believe that this trend shall change gradually as the market become accustomed to the taxation system. The economy is coming back on track. The future prospects of growth are high. The international crude oil market is also favourable for India.

The recent cabinet reshuffle is also significant in this regard as the agenda for boosting import-export sector is on high priority. This should give impetus to a positive sentiment in the market. The suppliers, manufacturers and their clients have now resumed their business activities and a direct impact of the same would be evident on the PMI. It is hoped that the different PMI components would upsurge and a collective impact would result in Purchasing Manager’s Index levels.