Purchasing Managers Index, 1990-2022

Purchasing Managers Index, 1990-2022

Source: Institute for Supply Management. Note: Relates to the United States.

Economic cycles and events are related to the level of production within an economy and the reported behavior of key actors involved in making purchasing decisions in the manufacturing sector. The Purchasing Managers Index (PMI) is a diffusion index, implying that it reflects a general direction in manufacturing, growth, or decline, from a large group of observations. It is also considered a leading indicator Based on a survey of a large sample of managers in a wide array of sectors, a score ranging from 0 to 100 is calculated. A value of 50 indicates neutrality as no change is observed, while a value above 50 indicates growth in purchasing. If the index drops below 50, a contraction is observed.

The PMI is subject to notable fluctuations and is a good indicator of economic activities and pressures (demand) on supply chains. When PMI increases rapidly, the transport system faces additional demands to carry cargo, a process often associated with increasing rates. Inversely, when PMI drops sharply, the demand for transportation services declines, leading to excess capacity and declining rates.

During the financial crisis of 2008-09, the PMI dropped rapidly to a record low, underlining the sudden and highly stressful impacts of mortgage-related defaults in the financial sector. The steady decline of the PMI during 2018 and through 2019 is mainly related to the trade war between the United States and China, which saw a surge in tariffs. Initially, the Covid-19 pandemic incited a sharp drop in the PMI in March and April 2020, but the situation reversed rapidly with a shift in consumption patterns toward more household goods and strong stimulus packages. By March 2021, the PMI reached record levels, which was reflected in substantial port congestion, container capacity shortages, and shipping rate increases.