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10 Years of the Purchasing Managers' Index (PMI)

Credit Suisse study on the Purchasing Managers' IndexToday, Switzerland's Purchasing Managers' Index (PMI) celebrates its tenth anniversary. The PMI is a leading economic indicator that reflects the business trend in the Swiss industrial sector each month. It has a high correlation with official statistics, which are usually published later. This makes the PMI a valuable tool for evaluating overall economic trends - as explained by Credit Suisse Economic Research in its latest publication.

Exactly ten years ago, the economists at Credit Suisse and the Swiss Association for Materials Management and Purchasing (SVME) created the PMI for Switzerland, based on the American model. Since then the Index has advanced to become Switzerland's most important leading economic indicator along with the KOF Barometer published by the Swiss Institute for Business Cycle Research at the Swiss Federal Institute of Technology in Zurich. The PMI is based on a monthly survey of SVME members.

Fast availability and high correlation with real GDP
The main advantage of the PMI, compared with other official statistics, is its fast availability. This joint Credit Suisse/SVME index gives an early insight into the current economic trend in Switzerland. The PMI has proven especially valuable in identifying short-term economic trends in the economy as a whole. Thanks to its close link with real GDP growth, cyclical turning points are indicated an average of three to six months in advance. Although the PMI "only" reflects the manufacturing sector, there is a close relationship with GDP: While the Swiss industrial sector now only accounts for little more than a quarter of total output, it is still largely responsible - owing to its high demand for services - for the fluctuations observable within a business cycle.

Subindexes provide reliable additional information at an early stage
In addition to the weighted, composite main index, the PMI comprises a number of subindexes that provide further information of considerable relevance to the economy. The study compares three of these subindexes - output, employment and prices - with similar official statistics. All three comparisons show a high degree of convergence. For example, the correlation between the PMI's output subindex and the output statistics of the Swiss Federal Statistical Office is 0.95 (a correlation of 1 would mean a complete match). The advantage of the PMI's output subindex over the Statistical Office's counterpart is that it is available much earlier. The output statistics appear up to two months after the end of a quarter, while the PMI with its subindexes is calculated and published monthly.

The PMI as a tool for observing and predicting economic trends
The rapid availability and high degree of convergence with official statistics make the PMI a valuable tool for observing and predicting trends in the Swiss industrial sector and in the economy in general. The PMI is published at 15:00 on the first working day of each month by the Credit Suisse Economic Research team. Today at 15:00 is another "PMI deadline", the first in the eleventh year of its existence.

Monthly SVME survey as the basis
The PMI is based on a monthly survey of members of the Swiss Association for Materials Management and Purchasing. This involves interviewing some 200 purchasing managers at Swiss industrial companies about the business performance in the current month compared to the previous month. The questions are of a qualitative nature and refer to a total of eight areas: output, backlog of orders, quantities of purchases, purchase prices (price index), suppliers' delivery times, stocks of purchases, stocks of finished goods and employment. After a simple calculation, the corresponding answers are incorporated into eponymous subindexes, five of which then make up the weighted composite PMI.