PMI / ISM (Purchasing Managers' Index)
An index built from surveys of corporate purchasing managers about business conditions — above 50 means expansion, below 50 means contraction. A leading indicator for reading the direction of the economy quickly.
PMI = surveys of corporate purchasing managers on production, new orders, employment, etc., turned into an index
When PMI breaks above 50, it is read as a sign of expansion; when it falls below, as a sign of contraction.
In plain terms
PMI is an index built by asking corporate purchasing managers, "Were your orders, production, and hiring higher this month than last month?" In the US, the one published by an organization called ISM is the best known.
It is simple to read. 50 is the baseline, so above 50 points to conditions improving (expansion) and below 50 to conditions worsening (contraction). Because it comes from voices on the ground, it shows the direction of the economy quickly.
What it tells you
PMI is a "leading indicator" that comes out ahead of actual statistics such as GDP and employment. Since it reflects what people on the ground feel, it is good at catching turning points where the economy changes course.
Manufacturing PMI and services PMI are looked at separately. Services make up a large share of the US economy, so looking at both together shows which side of the economy is stronger.
Formula
PMI = surveys of corporate purchasing managers on production, new orders, employment, etc., turned into an index The 50 line: above 50 = economic expansion · below 50 = economic contraction (in the US, the ISM index is the best-known one)
What high or low means
When PMI breaks above 50, it is read as a sign of expansion; when it falls below, as a sign of contraction. The moment the direction changes near 50 is watched especially closely.
The absolute level of the number and its direction versus last month tell you different things.
PMI is a "survey (sentiment)" measure, so it can diverge from actual production and consumption statistics. It is useful for reading the mood quickly, but it is not itself a confirmed economic result.
Near 50, even small changes flip it between expansion and contraction, so it shows up in a trend over several months rather than in a single month's number.
PMI and ISM are macro indicators. This term is background knowledge for understanding market news. (※ Our screens cover the financials of individual companies from SEC filings.)
Metrics to read alongside
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This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.