PMI Flashcards
PMI Weights
new orders
production
employment
supplier deliveries
inventories
new orders (0,3)
production (0,25)
employment (0,2)
supplier deliveries (0,15)
inventories (0,1)
What does PMI stand for?
The purchasing managers index
What does ISM stand for?
Institute for supply management
The PMI is a weighted composite of five indexes, which?
new orders
production
employment
vendor performance
inventory
In what range does the scores for ISM index fall?
btw 0-100
What is the contraction-ekspansion cutoff in the ISM index?
50
What scores indicate an expansion in the ISM index?
>50
What scores indicate a contraction in the ISM index?
<50
What five indexes forms the PMI
new orders
production
employment
supplier deliveries
inventories
How does the PMI relate to GDP growth?
PMI acts as a leading indicator for GDP, and they tend to move closely together. PMI is made more often, and thus used as a predictor for GDP
When is the ISM report made available?
First business day of every month at 10:00 am (ET)
What values does the individual ISM historically fluctuate between?
35 - 70
What is associated with a reading of 42.0 in the PMI?
A turning point in the overall business cycle.
Is the PMI a leading or lagging indicator of GDP?
Leading
Consider the ISM employment index. Explain why sub-50 readings are the norm.
Globalisation and and movement of production of manufacturing overseas is the reason.
The economy is mostly services now.
Productivity increases.
There are 10 ISM indeces, which?
- Prices (paid for materials)
- Production levels
- New orders
- Order backlogs
- Speed of supplier delivery
- Inventories
- Customer inventories
- Employment
- New export orders
- Imports
What does the ISM price index indicate?
It indicates possible inflationary pressures faced by manufacturers
What is special about an ISM price reading at 47,1?
A price index above 47,1 for a sustained period of time is generally consistent with an increase in the BLS’s index of manufacturing prices, which is one the measures of price inflation on the wholesale level.
Describe the correlation between the ISM price index and crude oil
Highly correlated. Many businesses use oil or derivatives in the process of manufacturing.
What is ISM supplier index a barometer of?
Inflation
What can be concluded if the ISM supplier index has exceeded 50?
Delivery has slowed
When did the ISM nonmanufacturing index appear?
July 19997
What does the ISM nonmanufacturing basically describe?
The service sector.
What can be expected from an ISM nonmanufacturing index reading above 50?
A growth rate of 3.5% p.a. in the consumption of services.
What does the New Orders minus Inventories depict?
Percentage change in GDP
or in other words the economic growth rate
What can be inferred from New Orders minus Inventories being zero?
The economy tends to contract
What has historically be associated with negative readings of New Orders minus Inventories?
Economic recessions
Reading of New Orders minus Inventories of 10 or higher has equated real economic growth rates of__?
3,5%
What crude model has a relationship the the S&P500 index?
The difference between the ISM new orders index and the price index
What can be expected if the difference between ISM new orders and the price index is greater than -20?
The total return of the S&P500 (year-on-year) will be postiive.
