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  • Economic Calendar Terms

    PMI services

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    The PMI is a composite index based on the seasonally adjusted diffusion indexes for the following five indicators, with varying judgmental weights applied: new orders - 30 percent; production - 25 percent, employment - 20 percent, supplier deliveries - 15 percent and inventories - 10 percent. Diffusion indexes are convenient summary measures showing the prevailing direction of change and the scope of change. They fluctuate from 0 to 100 percent. For any of the business survey indicators, an index reading of 50 percent indicates no change in the aggregate series being measured, because an equal number of committee members reported increases and decreases. An index reading above 50 percent indicates that the economy, or that indicator of the economy, is generally expanding and below 50 percent, generally declining. The distance from 50 percent is indicative of the strength of the expansion or the decline. Diffusion indexes have the properties of leading indicators.They reach a peak when the forces of expansion are the greatest, before the peak in a business cycle. They hit the bottom when the forces of contraction are most pronounced, before the in a business cycle.