PMI: Purchasing Managers’ Index

This index combines various business indicators, including new orders, inventory levels, and employment levels.

The PMI serves as a crucial tool for gauging the current state of the business sector and frequently forecasts economic conditions before they become severe.

Key Thresholds

• Above 50: Signals an expanding economy
• Below 50: Suggests economic contraction

A declining PMI may indicate reduced business optimism about future prospects, often resulting in decreased spending and hiring—potential precursors to recession.

Recessionary Signal

The market low occurs when the PMI inversion (below 50) retraces at least 70% back toward 50. Historically, the PMI recovers approximately 92% of the way back to neutral (the 50 line) on average before a recession metric, and frequently returns to positive territory.

Track It Yourself

Simple tracking method:

1. Draw a red line at 50
2. Install the “US recessions” indicator
3. Watch for PMI drops to 42, then retraces upward toward the midline

Related Articles:

• New Orders
• Housing Permits