Published on: February 12, 2025 / update from: February 12, 2025 - Author: Konrad Wolfenstein
The early indicators of the economy: a comparison between the shopping manager index (PMI) and the gross domestic product (GDP) - Image: Xpert.digital
Early indicator or long -term analysis? This is how PMI and GDP differ
Shopping manager index (PMI) and gross domestic product (GDP): A comparison of the economic indicators
In the complex world of economic analysis, understanding the current and future economic situation is of crucial importance. In order to grasp this dynamic, economists, analysts and political decision -makers use a variety of indicators. Two of the most prominent tools in this arsenal are the shopping manager index (PMI) and the gross domestic product (GDP). While both indicators offer valuable insights into the economic health of a country, they differ in their topicality, focus and their ability to predict future developments. The question of which indicator first shows the economy is not only of academic interest, but also has a practical impact on investment decisions, corporate strategies and the design of economic policy.
Suitable for:
The role of Purchasing Manager 'Index (PMI)
Purchasing Managers' Index (PMI), especially Manufacturing PMI, has established itself as an increasingly important early indicator of economic development in recent years. It is even discussed whether he could replace the gross domestic product (GDP) as a primary guiding indicator in the long term. Several factors speak for this thesis.
Topicality and speed of the PMI
A decisive advantage of the PMI lies in its topicality and speed. In contrast to GDP, which is only calculated quarterly, the Manufacturing PMI is collected and published monthly. This time advantage enables a significantly more timely assessment of the current economic situation. Purchasing managers are at the forefront of economic activity. Your daily work requires to recognize changes in the market conditions at an early stage and to react to it. They are the first to notice an increasing demand for raw materials, bottlenecks in supply chains or changes in the order inputs. These immediate observations flow directly into the PMI surveys and thus provide a precise and up-to-date picture of the economic constitution.
The lead character of the PMI
Another essential point is the lead character of the PMI. Historical data show that the PMI has an average of three to six months before the actual development of industrial production. This property makes it a valuable instrument in order to recognize turning points early in the economy. Analysts, investors and political decision-makers can make more informed decisions based on the PMI data because they get an insight into the likely future development. An increasing PMI, for example, indicates an upcoming increase in production, while a falling PMI indicates a possible weakening of industrial production. This preliminary run is invaluable for the timely adjustment of strategies and measures.
Wide cover of the Manufacturing PMI
The wide cover of the Manufacturing PMI is also a plus point. Although he primarily focuses on the manufacturing trade, which is a significant part of the overall economy, it is based on surveys among shopping managers from various industries and regions. This diversification ensures a representative sample of industrial activity. The results not only reflect the situation of individual companies, but also give a more comprehensive image of the situation in the entire sector.
Simple interpretation of the PMI
The simple interpretation of the PMI is another advantage that promotes its broad acceptance. The index uses a clear 50-point threshold. A value of over 50 signals an expansion of economic activity in the processing industry, while a value of less than 50 indicates a contraction. A value of exactly 50 indicates stagnation. This clear and simple structure also makes the PMI understandable for people without deeper economic knowledge and enables a quick assessment of the current situation.
Importance of the PMI on the financial markets
The reactions of the financial markets to changes in the PMI underline its importance. Unexpected changes in the PMI can trigger considerable movements on the stock, bond and currency markets. The PMI is perceived as an important early indicator for the general economic development and potential inflation risks. Investors use the PMI to make their investment decisions and align their portfolio accordingly. A positive PMI development can, for example, lead to increased share purchases, while a negative trend can give rise to caution.
International comparability of the PMI
The international comparability of Manufacturing PMI is of great advantage in an increasingly globalized global economy. The PMI is collected in many countries using similar methods, which enables direct comparisons of economic development between different nations. This comparability is of great importance for international companies, investors and political organizations to recognize global trends and make well -founded decisions.
Restrictions of the PMI
Despite its numerous advantages, the Manufacturing PMI also has restrictions. A major weakness is that he does not record all economic sectors. In particular, the growing service sector, which makes a significant share in GDP in many developed economies, is not taken into account in Manufacturing PMI. In order to counter this restriction, separate PMIs were introduced for the service sector in many countries, which in combination with the Manufacturing PMI provides a more comprehensive image of the overall economy.
Subjective influences on the PMI
As a survey -based indicator, the PMI is susceptible to subjective influences and mood changes. The answers from the purchasing managers can be influenced by current news, political uncertainties or general economic moods, which can lead to distortions. It is therefore important not to look at the PMI isolated, but to analyze it in the context of other economic indicators and qualitative information.
Limited answer options
The restriction to three answer options ("better", "worse", "unchanged") limits the accuracy of the PMI. This simplified structure does not cover the subtleties and the extent of the changes. For example, it is not distinguished whether the order situation has improved slightly or significantly. Despite these limits, the PMI still offers a valuable overview of the general direction of economic development.
Suitable for: