PMI (purchasing managers’ index)

Purchasing managers' indices are built from surveys asking companies whether conditions such as output, new orders, employment, supplier delivery times and prices are better, the same or worse than the month before. The answers are combined into a diffusion index where 50 is the dividing line: above 50 means more firms report improvement than deterioration, below 50 the opposite.

Main producers:

• S&P Global publishes PMIs for many economies, including the euro area, the UK, Japan, Australia and the US, with "flash" estimates released around the third or fourth week of the month and final figures at the start of the next.
• The Institute for Supply Management (ISM) publishes the US manufacturing and services indices, which markets often watch more closely than the S&P Global US figures.

Why forex traders watch it

PMIs arrive before official output data such as GDP, so they are among the first clues about how an economy is doing. A surprise relative to consensus can move expectations for central bank policy, and the prices-paid components feed into the inflation outlook.

Example

Illustrative figures: the euro area flash manufacturing PMI is expected at 47.5 and comes in at 49.0. That is still below 50, so the sector is still contracting, but less than forecast. A market focused on the surprise might read it as positive for the euro even though the absolute message is "contraction".

Common misconception

A PMI of 52 does not mean the economy grew 2%. It measures the breadth of improvement among surveyed firms, not the size. It is also a survey, so it can diverge from hard data for months.

More in how economic data moves forex and how to use an economic calendar.