The composite PMI (Purchasing Managers’ Index composite) is a key economic indicator that measures the overall health of a country or region’s economy, based on activity in the manufacturing and services sectors. The Composite PMI combines the results of two sub-indices, the Manufacturing PMI and the Services PMI, providing an overview of the performance of these two major sectors. It is calculated from responses to monthly surveys of purchasing managers, which assess criteria such as production, new orders, employment, delivery times and inventories.
The composite PMI is expressed as an index, with a key threshold of 50: a score above 50 indicates expansion in economic activity, while a score below 50 signals contraction. As such, it is widely used by investors, policy-makers and economists to anticipate business cycles and assess current economic dynamics.
In the manufacturing sector, the PMI assesses industrial production, order levels and price pressures, while the Services PMI focuses on service-related business activity, which accounts for a significant share of gross domestic product (GDP) in many developed economies. The composite PMI thus aggregates these data to provide a comprehensive measure of economic activity.
This indicator is particularly valuable as it is published monthly and often precedes other economic statistics, such as GDP, making it a leading signal for understanding the direction the economy is taking. If the composite PMI shows signs of expansion (above 50), this indicates that companies are increasing their activities, potentially creating jobs and stimulating economic growth. Conversely, an index below 50 reflects a slowdown that may precede a recession or economic stagnation.
For example, during the COVID-19 pandemic, composite PMIs plunged below 50 in many parts of the world, reflecting a massive contraction in economic activity due to global restrictions and disruptions. Conversely, after the restrictions were lifted, composite PMIs showed a rapid recovery in several sectors, signalling the economy’s revival.
In short, the composite PMI is a crucial early indicator for assessing the direction of the economy as a whole, by combining data from the manufacturing and services sectors. Closely followed by financial markets, it offers a quick reading of economic conditions and serves as a barometer for anticipating boom or bust cycles.
