Services Purchasing Managers’ Index or Services PMI is the indicator of the health of the services sector of the national economy. The index is calculated monthly by the Markit Economics. The main purpose of the PMI is to provide key decision makers — company owners and managers — with adequate and up-to-date information on business conditions.
How to calculate the PMI?
400 purchasing managers from all over the United States complete monthly surveys to provide the Markit Economics with up-to-date informtion. The index is based on several indictors. Each of them is assigned with an individual weight.
How to read the indicator?
The PMI value fluctuates between 0 and 100. A PMI reading above 50 represents expansion of the services sector, below 50 — a contraction. The PMI of 50 apparently indicates no change.
The rate of change is also important. A MoM decrease in reading from 58 to 52 would be perceived negatively by the market, because the growth is slowing down, bringing uncertainty and opening the gates for a potential recession.
Practical application
With the help of the PMI the investor can predict the well-being of the services sector and the general economy. Knowing when the market turns bearish is of great importance to any trader. A higher than expected reading should be taken as positive for the USD, a low than expected — as negative for the USD.
The PMI combines statistical data with confidence elements and therefore should be coupled with other indicators (PPI and GDP) for optimal results.