What is PMI use for?
And why is it important?
Overview of SIPMM PMI
SIPMM Institute is the educational arm of the Singapore Institute of Purchasing and Materials Management. The institute publishes the Singapore Purchasing Managers’ Index (PMI) on a monthly basis. The Singapore PMI has become a key barometer of the Singapore manufacturing economy and has been highly sought after by local and international news agencies, banks, investment and stock-broking firms.
The Singapore PMI is published monthly in the major language press media, such as The Straits Times, The Business Times, The New Paper, Chinese Daily News LianHe ZaoBao and the Malay Daily News Berita Harian. The index is also reported regularly in the international media, as well as economic and research agencies worldwide, such as CNBC, Bloomberg, Thomson Reuters, and more. In addition, the Channel News Asia and News Radio 93.8 also broadcast the monthly news release of the index.
The SIPMM Monthly PMI Bulletin consists of a 4-page publication that features the Singapore PMI and the Electronics Sector Index, as well as the various indicators that affect the well-being of the manufacturing sectors. The data are compiled from surveying purchasing managers in over 150 industrial companies. The survey is based on inputs from these companies, and weighted on each cluster’s contribution to Gross Domestic Product. Survey responses reflect the change, if any, in the current month compared to the previous month.
The PMI is a composite index based on the diffusion indices of leading market indicators, with varying weights applied. The PMI has been successfully used in the United States since 1931, and many countries have also adopted a similar methodology to compute the index. The Singapore PMI was developed in 1998 by Professor Philip Poh and was launched after successful pilot trials. The Singapore PMI was made available to the public on January 1999. Since then, the index has become a key barometer of the Singapore manufacturing economy. The report shows the number of responses in the positive economic direction and the diffusion index. Responses are raw data and never changed. Diffusion indices have the properties of leading indicators and provide quick summarised information. They depict the prevailing direction of change and the scope of change. The PMI reading above 50 indicates that the manufacturing economy is generally expanding and that the economy is generally declining when the reading falls below 50.
The monthly PMI issues are available for SIPMM Corporate Member only. You may watch the explanation video by SIPMM to understand more about the Singapore PMI. For more information, please email the PMI team at [email protected].
Get access to Monthly Singapore PMI Bulletin, Data Computation, Research Indicators, Data Analysis, and more.
What is Purchasing Managers' Index?
The Purchasing Managers’ Index (PMI) is a combined index of five different indicators: new orders, production, employment, supplier deliveries, and inventories. It is also known as “PMI” in short. A purchasing managers index is a monthly survey that measures the economic health of private sector manufacturing firms. The index surveys product managers, who are the ones who buy the materials needed for a company to manufacture its products. PMIs are used by investors to gauge the future of their industry, as they are a general representation of what purchasing managers think about their country’s economic situation. When the results of PMI surveys are released on a monthly basis, they are seen as a bellwether for the broader economy and provide traders with critical information to inform their trading decisions.
How does PMI works? And what does PMI measures?
A PMI is a composite index number based on data collected from monthly replies to questionnaires sent out by purchasing executives in the manufacturing sector of the economy. This data is used to assess the current state of the industry and provides a possible insight into future growth or lack thereof in the sector.
The PMI is complied and released every month by the Singapore Institute of Purchasing and Materials Management (SIPMM) featuring the Singapore PMI and the Electronics Sector Index, as well as the various indicators that affect the well-being of the manufacturing sectors since 1998. The data are compiled from surveying purchasing managers in over 150 industrial companies. The survey is based on inputs from these companies, and weighted on each cluster’s contribution to Gross Domestic Product (GDP). Survey responses reflect the change, if any, in the current month compared to the previous month. The PMI and its sub-indices are widely used to anticipate changing economic trends. It is often a precursor that predicts it before the official statistical data becomes available, such as GDP.
Calculating and reading the PMI
PMIs are calculated by surveying purchasing managers to get their opinions about business and industry conditions over the past month. The survey asks purchasing managers whether they believe business and industry conditions have improved, remained constant or deteriorated since the previous month.
The survey process is carefully designed to have equal weighting for several different categories which are then scored individually by the business professionals who take part. These categories include the number of new orders, sector production, supplier deliveries, company inventories and employment figures, where applicable.
The surveys ask respondents to report whether each variable has risen or improved, fallen or deteriorated, or remained unchanged. These objective questions are accompanied by one subjective question asking companies whether they forecast their output to be higher, the same, or lower in a year’s time. The purchasing managers’ responses are combined to give a single overall score for that month’s PMI that indicates the overall economic vitality of an economy.
The PMI reading with a score above 50 indicates that the manufacturing economy is generally expanding, and that the economy is generally declining when the reading falls below 50, and a score of 50 indicates no change from the previous month.
Why is PMI important? And what are the benefits of using PMI?
The PMI is an internationally recognised and widely used benchmark for economic performance that provides a holistic picture of the overall economy. The PMI surveys are ranked among the world’s most market moving economic data releases, which makes them an important piece of the puzzle in understanding how an economy is doing. It helps analysts and economists to anticipate economic trends in the official data series, including gross domestic product (GDP), industrial production, and employment.
The PMI report conveys information about how markets are performing at the time of publishing. Thus, immediate decisions can be made on short-term sector growth, the likely direction of commodity prices and current business expenditures. It also allows companies to take advantage of cost-savings and profit opportunities related to commodities.
In the long-term, accumulated PMI figures are interpreted as a leading indictor of other influential statistics such as the GDP growth, employment levels, inflation rate and interest rates. The PMI growth is often an indication of the favorable changes in market conditions, which the dollar has potential to be positively affected. The latter factors are important considerations when making investment and speculative decisions. A high inflation rate can lead investors to convert their wealth from cash and fixed-income securities to more secure assets like property and gold.
One of the significant benefits of using the PMI is that they are composed of data-based responses to questions about actual business conditions. This allows for a more accurate reading of the markets, as well as providing a clearer, more objective assessment than would otherwise be possible if based on opinion alone. This is an important distinction since the data complied in PMIs are based on hard data rather than opinion-based (or confidence-based) measurements. This also provides valuable insight into how the economy is doing and how businesses are expected to perform in the future, due to the insights into employment, orders, inventories, and growth that were complied.
Another benefit of using the PMI is that it is often the first batch of economic data released every month, which serves as an early indicator for the growth of the industry from the previous month.
Who releases the PMI? And when is PMI released?
The PMI is a timely indicator. In Singapore, the manufacturing PMI is released by the Singapore Institute of Purchasing and Materials Management (SIPMM). It is released on the second day of every month at 21:00 (GMT/UTC +8) after the survey was conducted and complied. The Singapore PMI bulletin is only available to SIPMM corporate members. Contact [email protected] for details.