Thursday, March 1, 2012

PMI: What’s That?

The Lehmann Letter (SM)

On the first of each month the Institute of Supply Management (ISM) issues its Purchasing Managers’ Index (PMI) on manufacturing. Purchasing managers assess manufacturing output by determining the ease with which businesses can obtain industrial inputs: Easy = a slack economy, Difficult = a robust economy. The PMI index, as you can see in the chart, records expanding conditions when it exceeds 50 and contracting conditions when it falls below 50.

Today’s PMI index for February was 52.4, down slightly from January’s 54.1:

The accompanying announcement said, in part: “Comments from the panel continue to reflect a generally positive outlook for the next few months."

Capacity Utilization
(Click on chart to enlarge)

(Recessions shaded)

Remember that any report over 50 signifies expansion, so the slight decline is no cause for concern. Manufacturing activity has expanded for 2 ½ years. But you may ask, “Why has manufacturing’s expansion slowed? The chart reveals more robust gains immediately after the recession’s end.” That’s because industry was busy restocking depleted inventories. Now progress is slower.

Take heart that the ISM’s survey revealed “… a generally positive outlook for the next few months.”

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© 2012 Michael B. Lehmann

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