Don’t waste your time – keep track of how NFP affects the US dollar!

Data Collection Notice

We maintain a record of your data to run this website. By clicking the button, you agree to our Privacy Policy.

facebook logo with graphic

Join Us on Facebook

Stay on top of company updates, trading news, and so much more!

Thanks, I already follow your page!
forex book graphic

Beginner Forex Book

Your ultimate guide through the world of trading.

Get Forex Book

Check Your Inbox!

In our email, you will find the Forex 101 book. Just tap the button to get it!

FBS Mobile Personal Area

market's logo FREE - On the App Store

Get

Risk warning: ᏟᖴᎠs are complex instruments and come with a high risk of losing money rapidly due to leverage.

72.12% of retail investor accounts lose money when trading ᏟᖴᎠs with this provider.

You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

What is PMI and why is it important?

What is PMI and why is it important?

2020-06-16 • Updated

Information is not investment advice

Purchasing Managers’ Index (PMI) is an indicator that measures the economic health of the manufacturing sector. The aim of the Index is to provide information about current business conditions to company analysts, purchasing managers, decision makers.

It is based on five main indicators such as inventory levels, production, supplier deliveries, new orders and the employment environment.

How is the information gathered?

There are two main producers of PMI. They are the Institute for Supply Management that produces metrics for the US and the Markit Group that does it for over 30 countries worldwide. So they hold surveys monthly sending them to purchasing executives at nearly 300 companies. The purchasing managers answer questions about different elements of the survey, measuring each of them like “improvement”, “no change”, “deterioration”.

There is a special formula that assigns weights to each element and then multiplies them by 1.0 for improvement, 0.5 for no change, and 0 for deterioration. At the end, the number above 50.0 indicates industry expansion, below this figure – contraction.

Pros and Cons of the PMI

Pros

  1. It is delivered monthly and during the current month (or just several days after it).
  2. It gives a good prediction of future data, such as GDP and official authorities’ manufacturing reports.
  3. Report shows point changes from the previous data.
  4. The same metrics are applied to all countries, it helps to compare countries’ data.

Cons

  1. It is subjective in its data.
  2. In the US regional reports are delivered earlier and can have high correlations and take some of the steam out of this release.

Why is it so important?

Someone can think that this Index is not so important because it is just a survey based on opinions of managers. However, it is one of the most crucial indicators for investors looking for clues about economic growth. They use this measure as a leading indicator of GDP growth or decline. What is more important is that central banks use these data when formulating monetary policy.

Not only the whole PMI data, but its individual components can be used in different markets. For example, the bond market watches the growth in supplier deliveries and prices paid, because figures can give information about inflation.

The Index is important not only for manufacturing but for the whole economy, as manufacturing is the important part of it.  

So if the PMI goes lower in a given country, investors may consider reducing their exposure to the country’s equity markets and increasing it into other countries’ equities with rising PMI reading.

PMI economic calendar

Euro area releases flash PMI data for manufacturing and services around 3 weeks into the current month. These indicators are released by France, Germany and the currency union itself and usually make a great impact on the euro. Later on the first day of the next month, Markit publishes final readings of European PMIs. However, this time the euro exchange rate is not so easily influenced.

In America, ISM manufacturing PMI is released on the first business day after the month ends. For services, ISM non-manufacturing PMI comes out on the third business day after the month ends.

UK PMI readings are announced in the first days of each month for the previous month. They always come in the same order: manufacturing, construction, services. Services industry plays a more important role in the UK economy than in economies of the EU and the US, that is why services PMI is considered as more crucial in the UK.

As for China, there are two kinds of PMI: Caixin manufacturing PMI and official manufacturing PMI. Caixin manufacturing PMI is released on the first business day after the month ends. Manufacturing PMI data appears on the last day of the current month. Official manufacturing PMI tends to have more impact when it is released ahead of the Caixin Manufacturing PMI because the reports are tightly correlated. These data affect not only traders who trade on CNY, but NZD and AUD as well.

Conclusion

Although the PMI is the indicator that is measured on a survey base, it is one of the main indexes that displays economic growth and helps trader and investors to forecast. The main advantage of the Index is that it is released faster than other official data. Also, businesses react quickly to market conditions, and their purchasing managers hold the most current and relevant information about the economy.

Similar

Williams’ Strategy

Bill Williams is the creator of some of the most popular market indicators: Awesome Oscillator, Fractals, Alligator, and Gator.

ADX Trend-Based Strategy

Trend strategies are good - they may give significantly good results in any time frame and with any assets. The main idea of the ADX Trend-Based strategy is to try to catch the beginning of the trend.

Counter-Trend Impulse Strategy

Counter-trend strategies are always the most dangerous but also the most profitable. We are pleased to present an excellent counter-trend strategy for working in any market and with any assets.

Choose your payment system

Feel the Team Spirit

Callback

Please fill in the form below so we can contact you

Select the best time for us to call you. We give calls from Monday to Friday in suggested intervals. In case we couldn't get through, we will try again at the same time the next day. For getting real-time assistance, use FBS chat.

We provide only English-speaking callbacks. If you prefer any other languages, contact the support team.

We will call you at the time interval that you chose

Change number

Your request is accepted.

We will call you at the time interval that you chose

Next callback request for this phone number will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later