PMIs explained: the survey data that moves currencies early

A purchasing managers' index, or PMI, is a monthly survey of companies about how business is changing. Because it arrives weeks before official figures on output or growth, it is one of the earliest reads on an economy, and currency markets pay attention.

How a PMI works

Purchasing managers are asked whether conditions such as new orders, output, employment, supplier delivery times and inventories are higher, the same or lower than the previous month. The answers are combined into an index where:

• Above 50 means activity is expanding compared with the previous month.
• Below 50 means it is contracting.
• Further from 50 means a stronger change.

A PMI measures the breadth of change, not its size. A reading of 52 means more firms reported improvement than deterioration.

Manufacturing, services and composite

• Manufacturing PMIs cover factories and are sensitive to trade and global demand.
• Services PMIs cover the larger part of most modern economies.
• Composite PMIs combine the two.

The releases traders watch

• S&P Global flash PMIs for the euro area, the UK, the US, Japan, Australia and others, published in the second half of the month before the month has ended. The flash readings are often the market-moving release.
• ISM in the United States: the manufacturing index on the first business day of the month at 10:00 a.m. New York time, and services two business days later.
• China: an official PMI from the National Bureau of Statistics at the end of the month and a private-sector PMI shortly after, both watched for their effect on commodity currencies such as the Australian dollar.

The details matter

• New orders hint at future activity.
• Prices paid or input prices can signal inflation pressure before it shows up in CPI.
• Employment components are read ahead of official jobs data.

Limits of PMIs

PMIs are surveys of sentiment and direction. They can be swayed by one-off shocks and don't always match later hard data. Markets react to the difference between the reading and the forecast, as with any release on the economic calendar.