PMI Explained

PMI (Purchasing Managers' Index) is the methodology for measuring business activity through monthly surveys of purchasing managers. The framework originated with the US ISM but has been replicated globally by IHS Markit (now S&P Global) and other providers, creating a worldwide system for tracking economic momentum across countries and sectors. PMIs are among the most timely and widely watched economic indicators globally.

What it measures

PMIs follow a consistent diffusion-index methodology across providers and countries:

• Purchasing managers respond monthly about whether conditions are "better, same, or worse" than the prior month.
• Responses cover multiple sub-categories: new orders, output, employment, prices, supplier deliveries, inventories.
• The diffusion index is calculated as percentage answering "better" plus half percentage answering "same."

The 50.0 threshold has the same interpretation everywhere:

• Above 50: Sector/economy expanding
• Below 50: Sector/economy contracting
• At 50: Neutral

PMIs come in several flavors:

• Manufacturing PMI: Goods-producing sector activity.
• Services PMI: Services sector activity.
• Composite PMI: Weighted combination of manufacturing and services.
• Construction PMI: Sometimes published separately for construction activity.

Major PMI providers and indices:

• ISM: US Manufacturing and Services indices. Longest history, most watched.
• S&P Global (formerly IHS Markit): Publishes PMIs for dozens of countries plus global composites.
• Caixin: China-focused PMI emphasizing private sector and SMEs (different from official China PMI).
• National statistical agencies: Many countries publish their own PMI equivalents.

How to use it in practice

PMIs provide several useful frameworks:

Cross-country comparison: Same methodology allows direct comparison across economies. A US manufacturing PMI of 52 can be compared to Eurozone manufacturing PMI of 47 to assess relative momentum.

Manufacturing vs services: Modern economies have services dominating GDP, but manufacturing PMIs often lead the cycle. When manufacturing weakens while services hold up, watch for eventual services convergence (or vice versa).

Composite indicators: Composite PMIs (combining manufacturing and services) provide cleaner economy-wide signal than either alone.

Global cycle identification: Global composite PMI shows the overall direction of world economic activity.

The 2022-2024 global PMI dynamics illustrate the framework:

• 2021: Global PMIs ran high (55+) during the post-pandemic boom.
• 2022: PMIs declined globally as supply chains normalized and demand cooled.
• 2023: Manufacturing PMIs moved into contraction territory globally; services held up better.
• 2024: Mixed picture with manufacturing recovering in some regions, services moderating in others.
• 2025-2026: Continuing oscillation around expansion/contraction line in major economies.

The China PMI dynamic deserves special attention. China's role as global manufacturer means Chinese PMI often leads global manufacturing cycles by months. The official Chinese PMI (NBS) and the private Caixin PMI sometimes diverge:

• Official PMI weighted toward state-owned enterprises and large firms.
• Caixin PMI weighted toward private and small-medium enterprises.
• Divergences reveal differences in policy support across firm types.

For asset positioning across PMI regimes:

Strong PMI environment (above 55 globally):

• Cyclical sectors ($XLI, $XLB) typically outperform
• Emerging markets ($EEM) often benefit from global growth
• Commodities supported by industrial demand
• Defensive rotation reduced

Moderate PMI environment (50-55):

• Mixed signals, sector selection important
• Quality bias often optimal
• Balanced positioning typically best

Weak PMI environment (below 50):

• Defensive sectors often outperform
• Long-duration bonds ($TLT) typically rally
• Commodity exposure often pressured
• Recession risk warrants attention

Sub-index analysis adds important detail:

New Orders: Most forward-looking. Often leads headline PMI by months.

Employment: Hiring/firing intentions signal labor market direction.

Prices Paid: Input cost pressure. Important inflation indicator.

Supplier Deliveries: Supply chain conditions and demand pressure.

The PMI framework's limitation is that it measures direction (better/worse) rather than magnitude. A weak expansion and a strong expansion could produce similar PMI readings. The level helps distinguish (PMI of 52 vs 58 indicates very different expansion strength), but absolute economic activity requires other measures (industrial production, GDP).

Common mistakes

Treating all PMIs as identical. Different providers (ISM, S&P Global, Caixin) survey different populations and weight differently. Compare like to like.

Watching only manufacturing PMI. Services PMI matters more in modern economies given larger services share of GDP.

Ignoring the level vs trend distinction. A PMI of 51 declining from 58 is more concerning than a PMI of 51 rising from 47.

Forgetting global perspective. US PMI matters, but global manufacturing cycle (visible in JPMorgan Global Manufacturing PMI) often drives commodity prices and emerging market dynamics more than US PMI alone.

ACCE perspective

PMIs aren't directly in our scoring system, but they're important macro inputs for understanding global cycle dynamics. Our analysis of cyclical and commodity-exposed coverage incorporates PMI trends as forward indicators of demand conditions.

For investors building portfolios, PMIs provide valuable cross-country and cross-sector comparison data. Global composite PMI trends often signal overall economic direction with timeliness that traditional GDP data lacks. The framework's consistency makes it one of the most useful macro indicators for ongoing market monitoring.