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POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

Purchasing Managers’ Index

Purchasing Managers’ Index (PMI) is a monthly economic indicator derived from survey responses of
senior purchasing and supply executives across private sector companies. Originally developed in the 1915
by the National Association of Purchasing Management, which is now the Institute for Supply
Management (ISM); the index has since been globalized and standardized by organizations like S&P Global
across more than 40 nations.

As a leading economic indicator, the PMI provides real-time insights into the Manufacturing (factories and
production) and Services (finance, IT, healthcare).

Survey methodology

? The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires
sent to purchasing managers in a panel of around 400 manufacturers.

? The panel is stratified by detailed sector and company workforce size, based on contributions to
GDP.

? Survey responses are collected in the second half of each month and indicate the direction of
change compared to the previous month.

? A diffusion index is calculated for each survey variable. It is a statistical tool used to aggregate
diverse survey responses into a single number that shows the general direction and rate of change
in the underlying data.

Manufacturing PMI

The Manufacturing PMI is a weighted average of the following five indices:

Sub-Indices Description S&P Global Weightage
New orders
Measures incoming demand & future sales. 30%

Output Measures the volume of goods being 25%
Employment produced. 20%
Tracks hiring and workforce changes

Suppliers’ Delivery Time * Tracks the time it takes for suppliers to 15%
Stocks of Purchase deliver materials. 10%
Tracks raw material or finished goods
inventory levels.

*The Suppliers' Delivery Times index is inverted so that longer lead times occurs when demand exceeds

capacity, signalling a robust economy and constrained supply chains. The shorter lead times represent

weaker demand, allowing suppliers to clear backlogs. This approach ensures that a high index (above 50)

consistently signals expansion and a low index (below 50) signals contraction.

PMI Index = (% of respondents saying increase *1) + (% of respondents saying no change *0.5) + (% of
respondents saying decline *0)

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