Purchasing Managers’ Indices (PMIs) are economic indicators derived from monthly surveys of purchasing and supply executives in private sector companies. They are diffusion indices, which means a reading of 50% represents no change from the previous period, while a reading under 50% implies respondents on average reported a deterioration. Their usefulness lay in being a leading indicator of GDP.
US manufacturing activity softened a little in February, falling back to the same level reached after December’s noticeable fall. According to the Institute of Supply Management (ISM) February survey, its Purchasing Managers Index recorded a reading of 54.2, down from January’s reading of 56.6 and under the market’s expected figure of 56.4.
The average reading since 1948 is 52.9, so the current reading is still above the long-term average. However, the reaction amongst observers to the report has not been favourable.
Personal consumption expenditure figures were released on the same day, so the individual reaction of financial markets to each of the reports is difficult to discern. In any case, US markets reacted by sending Treasury bond yields higher, with expectations of tighter monetary policy (in a technical sense) and a stronger US dollar.