Page 24 - Policy Economic Report - September 2024

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

An Economy’s Purchasing Managers Index (PMI)

The PMI features a headline number, indicating the overall health of an economy, and sub-indices, which
provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization,
employment, and inventories.

It is an indicator of the prevailing direction of economic trends in the manufacturing and service
sectors. The purpose of the PMI is to provide information about current and future business conditions to
company decision-makers, analysts, and investors.

The PMI is calculated based on responses to a survey sent to senior executives of various companies’ in
primary industries, which are weighted by their contribution to Gross Domestic Product (GDP).

The surveys include questions about business conditions, whether they are changing, and whether they
are improving or deteriorating. The PMI is based on five major survey areas—each of which is weighted
equally:

• New orders

• Inventory levels

• Production

• Supplier deliveries

• Employment

The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared
with the previous month. A PMI reading under 50 represents a contraction while a reading at 50 indicates
no change.

Advantages of the PMI

• The PMI is usually released monthly, offering up-to-date information about the economic activity
in the manufacturing or services sector. This timeliness allows policymakers, analysts, and
investors to quickly assess the current economic conditions.

• PMI is also considered a leading indicator because it tends to provide a glimpse of economic
trends before they are reflected in other economic data. Changes in the PMI can signal shifts in
economic activity before those changes are seen in other indicators like GDP growth or
employment numbers.

• The PMI captures information from various sub-components such as new orders, production,
employment, supplier deliveries, and inventories. This comprehensive view helps understand the

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