An introduction to the PMIsurveys
July 18, 2017

Confidential | Copyright © 2017 IHS Markit Ltd

An introduction to the PMI surveys

Introduction

3Methodology

4What IHS Markit do and why we do it

4

Creating IHS Markit PMI Data

5

Panel building

6

Data Collection

6

Data Calculation

7

Seasonal adjustment

7

Coverage: Nation

8

Coverage: Sector

9

Coverage: Survey Indices11

Coverage: Survey Indices –Headline Indices
13
Coverage: Survey Indices –Flash PMI Indices14|2

An introduction to the PMI surveys

Introduction
Welcome to the IHS Markit PMI™ data,compiled by IHS Markit. The following
document provides a simple single source
overview of IHS Markit, the IHS Markit PMI
survey methodology and the data produced.
IHS Markit is a global provider of some of theworld’s most influential business surveys, one
example being the PMI.
Our indicators are closely watched by thefinancial markets and help shape economic
policy, by providing some of the earliest
signals of economic performance.
The surveys form a key source of businessintelligence for participants operating in the‘real’ economy. Our data are presented in aclear, jargon-free format, allowing a swift
understanding of current economic trends.
Purchasing Managers’ Index™ (PMI™)
series are monthly economic surveys ofcarefully selected companies. They provide anadvance signal of what is really happening in
the private sector economy, by tracking
variables such as output, new orders,
employment and prices across key sectors.
Before outlining the PMI methodology ingreater detail, take a look at the charts to theright showing examples of the close
relationship between the PMI survey
indicators and official economic data. The PMI
data – which are published earlier than theofficial data – clearly identify the turning points
in the business cycle and closely track the rateof change in key economic variables such as
gross domestic product (GDP). This proventrack record is one of the many reasons why
the PMI is so closely monitored.

|3

An introduction to the PMI surveys

Methodology
What IHS Markit do and why we do it
The PMI methodology was developed to resolve issues caused by the following deficiencies andweaknesses in many official economic indicators:
Inconsistent methodologies between nations and regions, making like-for-like comparisons
between nations or regions difficult

Infrequent releases and delays in publication

Difficulties in providing coverage for the whole economyFrequent and ongoing revisions

These problems mean decisions are often made on the basis of data that subsequently change,
providing the potential for policy and investment allocation errors.
The PMI methodology allows for rapid collection, processing, analysis and publication of data,
providing a timely, accurate, reliable and internationally consistent series of global economicindicators.
There are four key elements to the methodology:
1. Standard questionnaire asked to key decision makers
Companies asked questions covering output, demand, prices, employment
Providing ‘grass roots’ level perspective on actual economic trends
Designed to produce timely information ahead of official data
2. Responses are provided simply on the basis if levels are higher, the same or lower than in theprior month
Allows rapid and accurate data collection
Quantitative responses ensure hard economic data…based on fact NOT opinions
3. Data are collected from structured panels, recruited and managed to ensure accurate
representation of underlying economic structure
Resulting indices are also weighted to further ensure accuracy and representation
4. Underlying survey responses included in the indices are not revised after first publication|4

An introduction to the PMI surveys

Creating IHS Markit PMI Data
The methodology for creating IHS Markit PMI data flows through a number of stages, starting fromthe initial building of the panel, through data collection and calculation and then the final publication ofthe latest readings. The following diagram outlines the process.
Panel is recruited to accuratelyrepresent the underlying structure of
the sector as given by official GVA
and company size data.

Data are collected on a monthly
basis. Relationships are built withpanel members to ensure low‘churn’.

Raw ‘diffusion’ indices arecalculated for the survey
sub-indices,
Dataareweighted to ensure they arerepresentative.

Weighted raw diffusion indices areseasonally adjusted to account forexpected seasonal variations.

|5An introduction to the PMI surveys

Panel building
Structural economic indicators obtained from national statistics offices are used to construct arecruitment matrix by company size and sector contributions to overall sectorial gross value added(GVA). This matrix is then used to target recruitment of a representative sample of companies for thesurvey. The building of the panel may be undertaken either by an in-house panel manager at IHS
Markit or by a country local agency.
An example of a recruitment matrix is shown below:
ISIC Service Sector Classification

1-19 Employees

20-249 Employees

250+ Employees

Sector(%)

Hotels & Restaurants

9734Transport & Storage

81518

8

Post & Telecommunications

02505

Financial Intermediation

1214178Renting & Business Activity

98108

87

58

Other Services

2428

34

17

Total

151

197

163

100

*Please note actual targets are more detailed by sector than illustrated(return to section Data Calculation)

Data Collection
Data are collected either by an in-house panel manager at IHS Markit or by a country local agency.
Companies are asked a standard sector-specific questionnaire on a monthly basis. Questions are of
the form, using output as an example, of:“Is the level of output at your unit (in volume terms) higher, the same or lower than one month ago”
Companies are also asked to provide reasons (freehand) for the response given.
Data are usually collected during the middle two weeks of the month, so companies are asked tocompare mid-month to mid-month. All responses are input into IHS Markit Polling Engine databasefor data calculation and weighting purposes.
Details on the variables for which data are collected are included in section Coverage: Survey Indices|6An introduction to the PMI surveys

Data Calculation
Individual company responses are weighted according to sector and company size contributions tooverall sectorial gross value added based on the weighting matrix constructed in the same way as therecruitment matrix used when recruiting the panel. The weighting provides IHS Markit with theweighted proportions of companies responding up, the same and lower.
The latest values for the sub-indices are then calculated using the following formula:

INDEX VALUE = (% ‘up’) + (0.5 * (% ‘the same’)) + (0.0 * (% reporting ‘down’))
The resulting index values are therefore bounded between 0 (all companies respond lower) and 100(all companies respond higher), with a theoretical no-change mark at 50 (all companies respond ‘thesame’ or equal proportions respond up as do for down).
The resulting index is called a diffusion index, with values above 50.0 signaling expansion and below
50.0 indicating contraction. The distance from the 50 no-change mark signals the implied rate ofchange in the variable, the further from 50.0 the faster the rate of change indicated.

Note on interpreting the index
For example, take a movement in a PMI output sub-index from 55.0 in January to 52.5 in February.
Although the level of the output index has fallen, it has nonetheless posted above 50.0 in bothmonths. The correct interpretation is that the volume of output expanded in both January andFebruary, but that the rate of increase was slower in February compared to January.

Seasonal adjustment
IHS Markit PMI sub-indices are seasonally adjusted using a combination of the Census Bureau X-12
ARIMA method and an in-house method developed by IHS Markit incorporating past adjustment
factors and additional information on observed seasonality provided from panel members’ responses.

|7

An introduction to the PMI surveys

Coverage: Nation
Purchasing Managers’ Index (PMI) surveys are now available for more than 30 countries and for key
regions including the Eurozone. Together these countries account for over 86% of global grossdomestic product (GDP), providing a true, internationally consistent indication of global economic
trends based on fact, not opinion. They are the most closely-watched business surveys in the world,
favoured by central banks, financial markets and business decision makers for their ability to provideup-to-date, accurate and often unique monthly indicators of economic trends.

IHS Markit publishes PMI data for the following nations (correct at July 18 2017):
Australia

India

Netherlands

TurkeyAustria

Indonesia

Philippines

UgandaBrazilIreland

PolandCanada

Italy

RussiaUnited ArabEmirates

China

Japan

Saudi Arabia

Czech Republic

Kenya

Singapore

Egypt

LebanonSouth Africa

FranceMalaysia

South Korea

Germany

Myanmar

Spain

GreeceMexicoTaiwanHong Kong

Nigeria

Thailand

United Kingdom
United States
Vietnam
Zambia|8An introduction to the PMI surveys

Coverage: Sector
The following table outlines the manufacturing, services and whole economy surveys produced byIHS Markit (correct as of July 18 2017):
Nation\Region

PMIPMI

PMIOutlook

Outlook

Outlook

Manufacturing

Services

Whole Economy*or Composite**

Manufacturing

Services

Composite**(Monthly)(Monthly)(Monthly)(Tri-annual)(Tri-annual)(Tri-annual)Global

Y

Y

Y**

Y

Y

Y**

European Union
EurozoneGermany
FranceItaly
Spain
Netherlands
Austria
Ireland
GreeceNon-Eurozone EU
United Kingdom
Czech Republic
PolandYYYYYYYYYYY
Y
YYY
Y––Y–

Y**
Y**
Y**
Y**Y**Y**––Y**–Y
YYYYYYYYYYYYYYY––Y–Y**Y**Y**Y**Y**Y**––Y**–YYYY––Y**––Y
YYY––Y**––YYYY

Y––Y

Y**––Y**Y––Y

Y––Y

Y**––
Y**Y
YYYYYYYYY
Y––YY
Y––––––––––

Y**Y**Y**––––––––Y*Y*YYY––––––––––YY
Y––––––––––Y**Y**
Y**––––––––––Americas
USA
CanadaMexicoBrazilAsia
ChinaJapan
India
South Korea
Indonesia
TaiwanVietnam
Malaysia
MyanmarThailand
Philippines
Singapore
Hong Kong|9An introduction to the PMI surveys

Middle East and Africa
Egypt
Saudi Arabia
UAE
South Africa
LebanonUgandaZambiaNigeria
Kenya––––––––––––––––––

Y
Y
Y

Y
Y–

Y*
Y*
Y*
Y*
Y*
Y*
Y*
Y*
Y*––––––––––––––––––––––––––––
Y––Y––Y**–

Other
Australia
RussiaTurkeyY**Y**–Survey coverage continued:
In addition to the manufacturing and service sector PMI surveys, IHS Markit also conducts surveys
for construction (UK, Germany, France, Italy and Republic of Ireland), retail (Germany, France andItaly) and jobs (UK) in a number of nations.

| 10

An introduction to the PMI surveys

Coverage: Survey Indices
The list of indices available for the manufacturing and service sector surveys is shown below.
Reading across the columns of each row of the table shows the comparable index types for eachsector and which indices for manufacturing and services are weighted together to calculate thecomposite readings.
For example, the Manufacturing Output Index is the direct equivalent of the Services Business
Activity Index and these two indices are weighted together to calculate the Composite Output Index.
(Return to section Data Collection for more information on the weighting process).
The headline index from each survey type is shown in bold text.
Important clarification: The headline Composite Output Index is a weighted average of the headline
Services Business Activity Index and the Manufacturing Output Index. The headline Manufacturing
PMI is NOT used in the calculation of the Composite Output Index.
ManufacturingServices

Composite(manufacturing andservices)

OutputBusiness Activity

OutputNew Orders

New Business

New Orders

Employment

Employment

Employment

Input Prices

Input Costs

Input prices

Output Prices

Output Prices

Output Prices

Backlogs of Work

Outstanding BusinessBacklogs of Work

Future Activity

Future Activity

Future Activity

Suppliers’ Delivery Times
Quantity of Purchases
Stocks of Purchases
Stocks of Finished Goods
New Export Orders
Purchasing Managers’
Index*| 11An introduction to the PMI surveys

The table below outlines the index coverage for the whole economy, construction and retail surveys:
Whole Economy

Construction

RetailOutputTotal Industry Activity

Actual Sales (vs. one monthago)

New Orders

New Orders

Employment

Employment

Employment

Overall Input Prices

Input Prices

Average Prices Paid

Quantity of Purchases

Value of Goods For Resale

Output Prices
Backlogs of WorkNew Export Orders
Quantity of Purchases
Stocks of Purchases
Suppliers’ Delivery Times

Stocks of Goods For Resale
Suppliers’ Delivery Times

Purchase Prices
Staff Costs
Future Activity
Purchasing Managers’
Index*
Housing Activity
Commercial Activity
Civil Engineering Activity
Sub-contractor Use
Sub-contractor Availability
Sub-contractor Quality
Sub-contractor Rates
ChargedActual Sales (vs. one yearago)
Actual Sales vs. Plans
Expected Sales vs. Plans
Gross Margins| 12

An introduction to the PMI surveys

Coverage: Survey Indices – Headline Indices
For each survey type (manufacturing, services, whole economy, construction and retail), IHS Markit
have defined a concept called the headline index. A headline index is the seasonally adjusted index
within that survey which is most closely watched by the markets. The value of the headline index,
unlike the values of other sub-indices, will appear on the press releases published by IHS Markit.
Survey Type

Headline Index

Manufacturing

Purchasing Managers’ Index™ (PMI™)

Services

Business Activity Index

Whole Economy

Purchasing Managers’ Index™ (PMI™)

Construction

Total Industry Activity Index

RetailActual Sales vs. One Month Ago Index

For services, construction and retail, the headline index is therefore based on a single question
asking if levels activity (or, in the case of retail, sales) are higher, the same or lower than in theprevious month.
For manufacturing and whole economy surveys, a separate derived index is assigned headline
status. This index is called the Purchasing Managers’ Index™ (PMI™) and is calculated as aweighted average of the following sub-indices:
Survey TypeHeadline Index

New Orders

30% weight applied

Output

25% weight applied

Employment

20% weight applied

Suppliers’ Delivery Times*

15% weight applied

Stocks of Purchases

10% weight applied| 13An introduction to the PMI surveys* The Suppliers’ Delivery Times Index (SDTi) is inverted, i.e. 100-SDTi, when included in the headline
PMI

Coverage: Survey Indices – Flash PMI Indices
For certain nations and sectors, IHS Markit also produce a “flash” estimate approximately one week
before final results are published. The flash estimate is calculated in exactly the same way as the final
published data, except the sample is an early cut of the data comprising only 80%-85% of the final
sample.

| 14