Manufacturing’s PMI is an Indicator of Economic Health
Used as an indicator of the economic health of the manufacturing sector, the Index considers five major indicators: inventory levels, new orders, supplier deliveries, production, and the employment environment. An index value above 50 indicates a positive development in the sector. A value below 50% indicates contraction.
The Index also demonstrates the prevailing direction of economic trends within the manufacturing and service sectors. Decision makers, investors and analysts use the PMI as a source to consider current and future business conditions. Its information is based on a monthly survey of supply chain managers across four hundred companies in 19 industries, weighted to consider its contribution to the U.S. Gross Domestic Product. The decision makers surveyed for the PMI are asked about current business conditions and if there are any changes, no changes, or if the situation is deteriorating in their sector.
The information compiled from the data of the PMI surveys also helps industry decision makers predict expected orders in the coming months. These considerations look at material costs, supply chain factors and labor. Using these inputs, decision makers can consider the feasibility of raising or lowering prices and the resulting impact of such actions.
While the current numbers aren’t necessarily all good news, the PMI does demonstrate things remain positive. With so many other factors in play right now, and the upcoming midterm elections, it is good the number did not drop further, especially when you consider the many impacts over the last two to three years.
Throughout this period, it has been clear all industries continue to be impacted by a variety of issues from pandemic after-effects to supply chain disruptions. It is what many call a perfect storm, particularly when you factor in the labor issues, which have been a long-term issue for the manufacturing industry amid accompanying recessionary pressures.
Another positive element that cannot be overlooked is that after the hiatus imposed by pandemic restrictions, many companies are ready and able to start moving forward. Expansion depends on this, and many companies are seeing the benefits of collaboration to circumvent remaining supply chain challenges. Such actions create a stronger collective force for the industry at large. When viewed through the right lens, there still can be much to celebrate, particularly when companies can continue to provide needed solutions to customers across a range of industries.