The Purchasing Managers Index (PMI) is an indicator for economic activity. Roughly speaking it reflects the percentage of purchasing managers in a certain economic sector that reported better business conditions than in the previous month.
A PMI index over 50 indicates that the economy is expanding while anything below 50 means that the economy is contracting.
Composition of the PMI
The original PMI is issued since 1948 by the Institute for Supply Management in Tempe, AZ. The data for the index are collected through a survey among 400 purchasing managers in the manufacturing sector on five different fields, namely, production level, new orders from customers, speed of supplier deliveries, inventories and employment level. Respondents can report either better, same or worse conditions than previous months.
For all these fields the percentage of respondents that reported better conditions than the previous months is calculated. The five percentages are multiplied by a weighing factor (the factors adding to 1) and are added.
Currently, PMI’s for other economic sectors and other geographical zones are issued by different organizations.
Uses of the PMI
The PMI report is an extremely important indicator for the financial markets as it is considered the best indicator of factory production. The index is popular for detecting inflationary pressure as well as manufacturing economic activity, both of which investors pay close attention to. The PMI is not as strong as the CPI in detecting inflation, but because the data is released one day after the month it is very timely.
Should the PMI report an unexpected change, it is usually followed by a quick reaction in stocks. One especially key area of the report is growth in new orders, which predicts manufacturing activity in future months.
Strengths
Extremely timely, the PMI is released one working day after the month to which it refers.
The PMI is often used to help predict the Producer Price Index which is released later in the month.
By many it is considered to be the best snapshot of the factory sector. It is a very worth while thing to do and is a big benefit in the long run.
Weaknesses
The survey gives three possible responses - fast, same, slower. Therefore results are not that specific.
The index leaves out employment costs, which are a large portion of manufacturing costs.
Thursday, November 12, 2009
Strong industry data adds to stimulus debate
NEW DELHI (Reuters) - India's industrial output grew a faster-than-expected 9.1 percent in September from a year earlier, helped by stimulus measures and adding to the debate over when the government should pull back from its aggressive policies to drive growth.
The increase in industrial output topped expectations in a Reuters poll, and August's annual growth was revised up to 11 percent from 10.4 percent, data showed on Thursday.
"It's extremely strong. Month-on-month it has grown about 17 percent annualised after seasonal adjustments. If this pick-up is not because of consumption then it won't sustain," said Ramya Suryanarayanan, economist at DBS in Singapore.
"The rise is mainly on account of pent-up demand," she said, expecting the rate of industrial output growth would moderate in October and November.
Yields on the 10-year bond rose 2 basis points following the data release.
Consumer durable goods output surged by an annual 22.2 percent as stimulus measures, festivals and wage back-pay to government staff boosted demand.
Manufacturing production in Asia's third-largest economy rose 9.3 percent in September from a year earlier, while mining output was up 8.6 percent and power generation rose 7.9 percent.
"It is much above expectations, even if you adjust for the positives ahead of Diwali in October. It is reiterating the fact that the policy environment continues to support industrial growth," Jyotinder Kaur, economist at HDFC Bank in new Delhi.
"I think the RBI will hike the repo and reverse repo rates at the January policy, but banks are not likely to immediately follow by raising lending rates. That will maintain sweet spot for industrial growth," Kaur said.
India's industrial output growth, which expanded for the ninth consecutive month, still lagged neighbouring China's 13.9 percent growth in September.
On Wednesday, China reported October factory output growth surged to a 19-month high of 16.1 percent, a sign the world's third-largest economy had put the worst of the global downturn behind it.
The October purchasing managers' index for India showed the pace of manufacturing activity picked up as domestic demand and factory orders rose.
BAD MONSOON
Faster output at factories, mines and utilities has helped offset a decline in farm output after the weakest monsoon in nearly four decades and then floods in parts of the country hurt crops and pushed up food prices.
Price pressures in recent months have strengthened the view the central bank could start tightening from early next year.
Economists think the first policy shift could be an increase in the cash reserve ratio for banks in the December quarter.
On Sunday, Prime Minister Manmohan Singh said the economy could still grow by 6.5 percent in 2009/10 (April-March), compared with 6.7 percent last year and 9 percent or more in each of the previous three years.
Officials have said the country still had to wait before unwinding stimulus efforts as the economy was not operating at full capacity, and said the inflationary impact of India's stimulus measures was likely to be minimal.
Last month, Reserve Bank of India kept its key lending rate unchanged after cutting it by 425 basis points between October and April as the global downturn hit the economy harder than expected. It also slashed banks' reserve requirements and pumped liquidity into markets.
Indirect tax collections drop 13% to Rs 25,495 cr in Oct
NEW DELHI: Excise and service tax collections continued to decline despite signs of a pick up in manufacturing and a general revival in the economic
activity, bringing into question the strength of the economic recovery underway and weakening the case for any immediate withdrawal of the fiscal stimulus. The contraction in customs duty was, however, not surprising with imports still falling at over 30% rates in recent months.
Total indirect tax collections, including excise duty, customs and service tax, dropped 12.95% to Rs 25,495 crore in October 2009 over corresponding month last year. However, October collections look better when stacked against September 2009 mop-up, suggesting some improvement.
The month-on-month contraction in excise collection is particularly surprising given the strong evidence of pick-up in manufacturing, which had grown a strong 10.4% in August 2009, the latest month for which data is available. The manufacturing looks to be still doing well. October had witnessed strong cement despatches and automobile sales have touched highest ever in any month.
“It may be too early to draw any conclusion on the trend,” a finance ministry official said. The government had indeed cut factory levies to shield the country from the global financial crisis. That could be one explanation for the week excise collections. The financial services sector, one of the largest contributor to the service tax, has also shown some recovery. Another official in the ministry, however, said a detailed analysis was yet to be carried out.
But the overall contraction in service tax collections does not square with the official 6.5% estimate of national income or GDP growth in the economy. Services have an over 55% share in the GDP, measured at current price.
The government’s total indirect tax collections for April-October 2009 are only 47% of the total budgeted collection from customs, excise and service tax levy for 2009-10. The lower than budgeted collection will put further pressure on government finances.
“We can’t continue to have fiscal deficit in the order of 6.8% of gross domestic product,” Mr. Rangarajan said. “We need to cut it by at least 1%-1.5% next (fiscal) year.”But any premature withdrawal of the stimulus runs the risk of affecting the economic recovery.
activity, bringing into question the strength of the economic recovery underway and weakening the case for any immediate withdrawal of the fiscal stimulus. The contraction in customs duty was, however, not surprising with imports still falling at over 30% rates in recent months.
Total indirect tax collections, including excise duty, customs and service tax, dropped 12.95% to Rs 25,495 crore in October 2009 over corresponding month last year. However, October collections look better when stacked against September 2009 mop-up, suggesting some improvement.
The month-on-month contraction in excise collection is particularly surprising given the strong evidence of pick-up in manufacturing, which had grown a strong 10.4% in August 2009, the latest month for which data is available. The manufacturing looks to be still doing well. October had witnessed strong cement despatches and automobile sales have touched highest ever in any month.
“It may be too early to draw any conclusion on the trend,” a finance ministry official said. The government had indeed cut factory levies to shield the country from the global financial crisis. That could be one explanation for the week excise collections. The financial services sector, one of the largest contributor to the service tax, has also shown some recovery. Another official in the ministry, however, said a detailed analysis was yet to be carried out.
But the overall contraction in service tax collections does not square with the official 6.5% estimate of national income or GDP growth in the economy. Services have an over 55% share in the GDP, measured at current price.
The government’s total indirect tax collections for April-October 2009 are only 47% of the total budgeted collection from customs, excise and service tax levy for 2009-10. The lower than budgeted collection will put further pressure on government finances.
“We can’t continue to have fiscal deficit in the order of 6.8% of gross domestic product,” Mr. Rangarajan said. “We need to cut it by at least 1%-1.5% next (fiscal) year.”But any premature withdrawal of the stimulus runs the risk of affecting the economic recovery.
Export shrinks slower at 11.4%
NEW DELHI: India's exports contracted at a lower rate in October than in recent months following a positive growth in a number of sectors in the
recent months, suggesting that demand may be beginning to look up in the developed world.
A part of the improvement could, however, be due to the base effect, a decline in exports in October 2008 due to a sudden deterioration in global trade because of the financial crisis. That the heavyweight sectors such as engineering goods and readymade garments continued to decline also take some sheen off the October numbers. Exports contracted 11.4% in October 2009, the thirteenth straight month of decline. This is still seen as an improvement as the fall in exports was as high as 39.2% in May 2009.
“If the current trend continues, exports are expected to turn positive in January,” commerce secretary Rahul Khullar said. However, the overall export figures for the fiscal would be marginally lower than exports in 2008-09, he added.
The improvement is due to a number of high value exports sectors beginning to grow in recent months. These include drugs and pharma, cotton yarn fabrics, electronic goods, and iron ore. Some of these had actually started growing from August 2009 itself. “This is the first vindication of the green shoot hypothesis,” Mr Khullar said.
Amid a debate over stimulus withdrawal, this sign of pickup could invite suggestion of roll back for exports sector as well. Mr Kullar dismissed any such notion saying, “There shouldn’t be a roll-back just because one is seeing the first signs of some recent recovery”.
With Christmas and New Year pushing up demand in the Western markets, including the EU and the US, exporters are hopeful of demand going up and exports turning positive by the beginning of the new year.
Despite the better outlook, they still feel a need for more help from the government. “There should be an immediate increase in duty drawback rates to provide price competitiveness to Indian exporters so that it gives a fillip to exports,” said A Sakthivel, president of the Federation of Indian Export Organisations, an alliance of export promotion bodies in the country.
The decline in exports had peaked at 39% in May this year, and then subsequently started going down. In September 2009, the fall in exports was a relatively low 13.8%.
recent months, suggesting that demand may be beginning to look up in the developed world.
A part of the improvement could, however, be due to the base effect, a decline in exports in October 2008 due to a sudden deterioration in global trade because of the financial crisis. That the heavyweight sectors such as engineering goods and readymade garments continued to decline also take some sheen off the October numbers. Exports contracted 11.4% in October 2009, the thirteenth straight month of decline. This is still seen as an improvement as the fall in exports was as high as 39.2% in May 2009.
“If the current trend continues, exports are expected to turn positive in January,” commerce secretary Rahul Khullar said. However, the overall export figures for the fiscal would be marginally lower than exports in 2008-09, he added.
The improvement is due to a number of high value exports sectors beginning to grow in recent months. These include drugs and pharma, cotton yarn fabrics, electronic goods, and iron ore. Some of these had actually started growing from August 2009 itself. “This is the first vindication of the green shoot hypothesis,” Mr Khullar said.
Amid a debate over stimulus withdrawal, this sign of pickup could invite suggestion of roll back for exports sector as well. Mr Kullar dismissed any such notion saying, “There shouldn’t be a roll-back just because one is seeing the first signs of some recent recovery”.
With Christmas and New Year pushing up demand in the Western markets, including the EU and the US, exporters are hopeful of demand going up and exports turning positive by the beginning of the new year.
Despite the better outlook, they still feel a need for more help from the government. “There should be an immediate increase in duty drawback rates to provide price competitiveness to Indian exporters so that it gives a fillip to exports,” said A Sakthivel, president of the Federation of Indian Export Organisations, an alliance of export promotion bodies in the country.
The decline in exports had peaked at 39% in May this year, and then subsequently started going down. In September 2009, the fall in exports was a relatively low 13.8%.
Subscribe to:
Posts (Atom)