The HCOB PMI® (Purchasing Managers' Index®) is an important economic indicator from Hamburg Commercial Bank and S&P Global

Basis for decision-making for the economy: The HCOB PMI® reveals trends

The HCOB PMI® (Purchasing Managers' Index®) is a central economic indicator developed in cooperation between Hamburg Commercial Bank (HCOB) and S&P Global. This index provides in-depth insights into the economic development of the Eurozone and specifically the countries of Germany, France, Italy and Spain. The PMI® is considered a reliable early indicator of the economic situation and serves as an important basis for decision-making for companies, investors and political actors.

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Key features of the HCOB PMI®

• Scope: The index covers various sectors including manufacturing, services and construction. This broad coverage allows for a comprehensive analysis of economic dynamics.
• Scale: PMI values ​​range from 0 to 100. Values ​​above 50 indicate expansion, while values ​​below 50 indicate contraction.
• Frequency: The PMI is published monthly and therefore always provides up-to-date information about economic developments.
• Data collection: The calculation is based on standardized surveys among purchasing managers from various industries. These indicate whether certain aspects of their business have improved, worsened or remained the same compared to the previous month.

Meaning and application of the HCOB PMI®

The HCOB PMI® is an indispensable tool for analyzing economic developments and is used in a variety of areas:

1. Economic assessments: The PMI provides a timely and precise assessment of the current economic situation. It enables decision-makers to act based on concrete data.
2. Forecasting tool: The PMI can be used to identify trends that allow conclusions to be drawn about the future development of production activities, labor market conditions and incoming orders.
3. Investment Decisions: Investors use the PMI to evaluate market opportunities and adjust their strategies accordingly.
4. Global comparison options: Since the PMI is collected for different countries and regions, it offers a valuable basis for international comparisons of economic performance.

Variants of the HCOB PMI®

The HCOB sponsors several specific variants of the PMI, each targeting different aspects of the economy:

• Overall index (Composite PMI): This combines the results from the manufacturing and services sectors.
• Flash PMI: A preliminary estimate released earlier in the month that provides a quick assessment of the state of the economy.
• Industry PMIs: Specific indices for manufacturing, services and construction.
• Regional PMIs: For individual countries such as Germany, France, Italy and Spain.

The Importance of Manufacturing PMI

The Manufacturing PMI, which specifically measures economic activity in the manufacturing sector, is a particularly significant variant. A value of 50.6, for example, indicates moderate growth dynamics in this sector.

Interpretation of a PMI value

Threshold at 50

• Values ​​over 50: indicate expansion.
• Values ​​below 50: Signal shrinkage.

Positive aspects with a value of 50.6:

• Manufacturing activity remains stable and the sector shows growth trends.

Negative aspects

• Low momentum can indicate challenges such as weak demand, increased costs or geopolitical uncertainties.

Historical comparison

A rising PMI compared to the previous month indicates improvement, while a decline, even if the value remains above 50, signals a slowing in the growth rate.

Data collection and calculation of the PMI

The data collection for the PMI is based on standardized surveys of purchasing managers on key aspects of their business activities. Typical questions include:

• New orders: Have they increased, decreased or stagnated?
• Production: How has the production level developed?
• Employment: Have there been any changes in the number of employees?
• Delivery times: Have the delivery times changed?
• Stock levels: Have they been increased, decreased or remained unchanged?
• Purchase prices: How have purchase prices developed?

The answers are then categorized as “better,” “same,” or “worse” and combined into a weighted average. The weighting of the individual components varies depending on the index and the survey institute.

Scale and interpretation

• PMI over 50: expansion compared to the previous month. The higher the value, the stronger the growth.
• PMI below 50: contraction. The lower the value, the greater the decline.
• PMI at 50: No change from previous period.

Why is the PMI so important?

The PMI is considered an essential economic indicator for several reasons:

1. Leading indicator: As one of the first indicators of the month, it provides timely insights into economic developments and acts as an early warning system for potential economic changes.
2. Real-time data: The PMI reflects companies' assessments and expectations and thus offers a direct insight into the economic mood.
3. Wide applicability: The PMI is collected in many countries and regions and therefore enables a global comparison of economic development.
4. Detailed Analysis: The components of the PMI provide deeper insights into specific areas such as new orders, production and employment.
5. Influence on policy: Governments and central banks use the PMI to make monetary policy measures and economic policy decisions.

Different Types of PMIs

In addition to the Manufacturing PMI, there are other specialized indices:

• Services PMI: Focuses on economic activity in the services sector.
• Composite PMI: Combines manufacturing and services results.
• Country-specific PMIs: Examples include the Germany PMI or the Eurozone PMI.

Important institutions for publishing the PMI

Several reputable organizations are responsible for calculating and publishing the PMI:

• S&P Global: Publishes the world-famous Markit PMIs.
• Institute for Supply Management (ISM): Responsible for PMIs in the USA.
• China Federation of Logistics & Purchasing (CFLP): Responsible for the official Chinese Purchasing Managers Index.

The HCOB PMI® and its variants are indispensable tools for assessing economic development. They offer valuable insights for companies, investors and policy makers. Due to its broad applicability and status as a leading indicator, the PMI remains one of the most important tools for economic analysis. It not only enables informed decision-making, but also clear orientation in an increasingly complex global economy.

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The HCOB PMI® (Purchasing Managers' Index®) is a key economic indicator collected and published by Hamburg Commercial Bank (HCOB) in cooperation with S&P Global. This index serves as a leading indicator and provides essential insights into the current and future economic condition of the Eurozone and its most important member states, namely Germany, France, Italy and Spain. Its importance lies in the fact that it provides valuable information on the development of the manufacturing, services and construction economic sectors on a monthly basis, thus enabling a timely assessment of the economic situation.

The essential features of the HCOB PMI®

The HCOB PMI® is characterized by several key features that underline its significance and relevance:

Broad sectoral coverage

The index covers a wide range of economic activities. In addition to the manufacturing sector, which receives a lot of attention, the service sector and the construction industry are also taken into account. This comprehensive view enables a holistic picture of economic dynamics.

Clear indicator scale

The PMI uses a scale from 0 to 100 points. A value of 50 forms the neutral threshold. Values ​​above 50 signal economic expansion or growth in the sector under consideration, while values ​​below 50 indicate a contraction or decline. The further the value is from the 50 point mark, the more pronounced the respective movement is.

High frequency of publication

The monthly publication of the HCOB PMI® ensures that the data is highly up-to-date. This enables economic participants to react promptly to changes in the economic situation and adapt their decisions accordingly. The early publication compared to many other economic data makes it a particularly valuable leading indicator.

In-depth data collection through surveys

The calculation of the HCOB PMI® is based on detailed monthly surveys of purchasing managers in various industries. Due to their position, these managers are directly involved in the procurement processes and therefore have up-to-date information and assessments on the economic situation of their companies and the respective sectors. The questions cover aspects such as new orders, production levels, employment, delivery times and inventory levels.

The importance and diverse applications of the HCOB PMI®

The HCOB PMI® is an indispensable tool for a wide range of stakeholders:

Pursue

For companies, the PMI provides valuable information for strategic decisions. It enables a precise assessment of the current economic situation, which is of great importance for production planning, investment decisions and human resources management. For example, a rising PMI can be a signal of increased demand, which can prompt companies to increase production. Conversely, a falling PMI can indicate an impending slowdown, which may lead to an adjustment in production capacities.

Financial experts and investors

The HCOB PMI® is closely monitored on the financial markets because it is considered a reliable leading indicator of economic development. It influences the assessments of analysts and investors and can therefore have an impact on stock prices, exchange rates and bond yields. A positive PMI can boost investor confidence and lead to capital inflows, while a negative reading can lead to uncertainty and capital outflows.

Policy makers

The HCOB PMI® is also an important decision-making tool for governments and central banks. It provides information about the state of the economy and helps assess the effectiveness of economic policy measures. The European Central Bank (ECB), for example, takes the PMI into account when making monetary policy decisions. A strong PMI could indicate inflationary pressures and lead to tighter monetary policy, while a weak PMI could justify expansionary measures.

Economic researchers and analysts

The HCOB PMI® is valuable data material for the scientific analysis of economic cycles. It enables the identification of turning points in economic development and contributes to the understanding of the underlying economic mechanisms.

The different variants of the HCOB PMI®

In order to meet the different needs of users, different variants of the HCOB PMI® are created and published:

Overall index (Composite PMI)

This index is a weighted average of the manufacturing and services PMIs. It provides a comprehensive overview of all economic activity in a region or country. The weighting of the individual sectors is usually based on their contribution to gross domestic product (GDP).

Flash versions

These preliminary versions of the PMI are released about a week before the final numbers. They are based on a larger part of the usual monthly answers and offer a first, quick insight into the economic development of the current month. The flash PMIs are particularly important in the financial markets because they provide very timely information.

Manufacturing and services indices

These sector-specific indices provide detailed insights into the development of the two most important economic sectors. They make it possible to identify strengths and weaknesses in the individual sectors.

Construction PMIs

Separate PMIs are collected for the Eurozone, Germany, France and Italy specifically for the construction industry. These indices provide information about activity in a sector that is heavily influenced by interest rate developments and government support measures.

The Manufacturing Purchasing Managers' Index (PMI) in Detail: A Snapshot of Industrial Activity

The Manufacturing PMI, i.e. the purchasing managers' index for the manufacturing sector, is a particularly important part of the HCOB PMI®. For example, a value of 50.6 raises specific questions and allows detailed interpretations:

The importance of the 50 point threshold

The magic limit of 50 points separates growth from contraction.

Values ​​over 50

Signals an expansion in the manufacturing sector. This means more companies will increase production, receive more orders and potentially hire more staff.

Values ​​below 50

Indicates a contraction. In this case, production will decline, new orders will fall, and companies may be forced to cut jobs.

Interpretation of a value of 50.6

• Positive aspects: A value of 50.6 shows that the manufacturing sector is in a slight growth phase. There is at least some stability and the sector has not entered a period of decline. This can be interpreted as a sign of resilience.
• Negative aspects: However, the dynamics can be described as weak. A value just above 50 suggests that growth is fragile and may be held back by various uncertainties or challenges. These challenges could include weak global demand, geopolitical tensions, rising commodity prices or ongoing supply chain issues.

Comparison with previous month's values

The interpretation of a current PMI value becomes more meaningful when it is compared with the values ​​of previous months.

Rising PMI

If the PMI rose to 50.6 from, for example, 50.3 in the previous month, this indicates a slight improvement in the economic situation in the manufacturing sector. The growth dynamic has increased.

Falling PMI

However, if the PMI fell to 50.6 from, say, 50.9 the previous month, this signals a slowdown in growth. Although the sector is still expanding, the pace of growth has slowed.

The context is crucial

The interpretation of the PMI should always be done in the context of the current economic conditions. For a heavily export-oriented economy like South Korea, which is mentioned in the example text, external factors play a particularly important role. Global demand, the development of important trading partners and geopolitical risks can significantly influence the PMI.

The PMI survey methodology: A look behind the scenes

The PMI collection is based on a standardized and proven procedure that ensures the comparability of the data across different time periods and regions.

The survey of purchasing managers: The core of the PMI survey is the monthly survey of purchasing managers in a representative selection of companies in the respective sector. These managers are interviewed about various aspects of their business operations. The questions are usually qualitative in nature and aim to capture changes compared to the previous month.

Typical questions at a glance:

• New orders: Has the volume of new orders increased, decreased or remained the same compared to the previous month?
• Production: Has the production level increased, decreased or remained the same compared to the previous month?
• Employment: Has the number of employees increased, decreased or remained the same compared to the previous month?
• Supplier delivery times: Have delivery times increased, shortened or remained unchanged compared to the previous month? (Extended delivery times are often interpreted as a sign of high demand and a good economic situation).
• Inventories (Purchased Materials): Have inventories of purchased materials increased, decreased, or remained the same compared to the previous month?
• Order backlog: Has the order backlog increased, decreased or remained the same compared to the previous month?
• Purchasing prices: Have the purchasing prices for raw materials and intermediate products increased, decreased or remained the same compared to the previous month?
• Sales prices: Have the sales prices for your products or services increased, decreased or remained the same compared to the previous month?
• Outlook: How do purchasing managers assess the future development of business activities in the next few months? This question targets the expectations component.

Converting the answers into an index value: Calculating the PMI

The purchasing managers' answers are not simply averaged, but converted into an index value using a special procedure.

Diffusion indices: A so-called diffusion index is calculated for each of the above questions. This index takes into account the proportion of respondents reporting an improvement, a worsening or no change. Typically, the answers are weighted as follows: “better” gets a weight of 1, “same” gets a weight of 0.5, and “worse” gets a weight of 0.

Component weighting: The PMI is a weighted average of the diffusion indices for the individual components. The weighting of the individual components may vary slightly depending on the survey institute and the specific index, but is usually based on the economic importance of the respective component. For example, new orders and production often have a higher weight than inventory.

The Formula: The basic formula for calculating PMI is:

PMI = (P1 * 1) + (P2 * 0.5) + (P3 * 0)

Where:

• P1 = Percentage of responses indicating improvement
• P2 = Percentage of answers indicating no change
• P3 = Percentage of responses indicating deterioration

The interpretation of the PMI value in detail:

The interpretation of the PMI values ​​is a central aspect of using this indicator.

PMI over 50: Expansion and growth: A value over 50 signals that economic activity is expanding compared to the previous month. The higher the value is above 50, the stronger the growth. For example, a PMI of 60 indicates very strong growth.

PMI below 50: Contraction and decline: A reading below 50 indicates a decline in economic activity compared to the previous month. The lower the value is below 50, the greater the decline. A PMI of 40 signals a significant contraction.

PMI at 50: Stagnation and no change: A value of exactly 50 means that economic activity has not changed compared to the previous month. There is a phase of stagnation.

The importance of the PMI as a leading indicator: why is it so important?

The PMI enjoys a high status as an economic indicator for several reasons:

Early information

The PMI is usually published in the first half of the month and therefore provides very timely information about the current economic situation. It is considered a “leading indicator” because it often shows changes in the economy before they become visible in other official statistics.

Real-time data from the economy

In contrast to many other economic data, which are published with a time lag, the PMI is based on current surveys and reflects companies' immediate assessments and expectations.

Broad international comparability

The PMI is collected for numerous countries and regions using a uniform methodology, which enables a direct international comparison of economic development. This is particularly valuable for global companies and international investors.

Detailed insights into various aspects

The individual components of the PMI provide more detailed insights into different facets of economic activity, such as trends in new orders, production, employment and prices.

Indicator of the mood

The PMI also reflects the mood and confidence of purchasing managers. These subjective assessments can have an important influence on their future investment and production decisions and thus influence actual economic development (self-fulfilling prophecy).

The diversity of PMIs: Different sectors and regions in focus

The family of Purchasing Managers' Indices includes different variants tailored to different economic sectors or geographical regions:

• Manufacturing PMI: Focuses on manufacturing companies and is the most traditional and widely followed PMI.
• Services PMI: Tracks economic activity in the service industries, which account for an increasingly larger share of modern economies.
• Composite PMI: A weighted average of the manufacturing and service sector PMIs. It offers a comprehensive overview of the entire economy.
• Country-specific PMIs: Are collected for individual countries and enable the analysis of economic developments at the national level (e.g. Germany PMI, France PMI, USA PMI).
• Regional PMIs: Refer to specific economic regions (e.g. Eurozone PMI).

The actors behind the numbers: Who publishes the PMI?

The collection and publication of PMIs is carried out by various organizations, with two in particular being highlighted:

• S&P Global (formerly Markit): Is the world's leading provider of PMI data. The Markit PMIs published by S&P Global are widely used internationally and are highly regarded.
• Institute for Supply Management (ISM): Publishes the ISM Manufacturing PMI and ISM Services PMI for the United States. These indices are central to the US economy.
• There are also other organizations that collect and publish PMIs, such as the China Federation of Logistics & Purchasing (CFLP) for the official Chinese Purchasing Managers Index.

The PMI as an indispensable tool for monitoring the economy

The Purchasing Managers' Index (PMI), in particular the HCOB PMI® collected by the HCOB in collaboration with S&P Global, is an extremely valuable tool for assessing current and future economic development. It provides decision-makers in companies, governments, central banks and others provides the financial markets with important information for their planning, forecasts and strategic decisions. Its topicality, its broad coverage and its detailed insights make it an indispensable part of modern economic monitoring.

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