Tracking the economy with the Purchasing Managers' Index

The purchasing managers' index is a widely watched but virtually untested indicator of manufacturing activity. Although there is evidence that the index tracks the general ups and downs of the economy, analysts have not demonstrated that the purchasing managers' data yield information on t...

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Bibliographic Details
Published in:Federal Reserve Bank of New York Quarterly Review 1991-10, Vol.16 (3), p.61-69
Main Author: Harris, Ethan S
Format: Article
Language:English
Subjects:
Analysis
Economic development
Economic indicators
Effectiveness
Evaluation
Indexation
Manufacturers
Manufacturing
Purchasing groups
Statistical analysis
Studies
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Summary:The purchasing managers' index is a widely watched but virtually untested indicator of manufacturing activity. Although there is evidence that the index tracks the general ups and downs of the economy, analysts have not demonstrated that the purchasing managers' data yield information on the economy beyond that already provided by other indicators. The strengths and weaknesses of the index as a forecasting tool are analyzed. The results give mixed support for the purchasing managers' index. One shortcoming is the index's tendency to pick up activity in the weeks preceding the month it is supposed to measure. Another limitation is that none of its components explains more than 1/2 of the monthly variation in the corresponding official statistics. Furthermore, the index is not a reliable leading indicator. Nevertheless, the index does add significantly to the explanatory power of simple econometric models and consensus forecasts. It could be even more useful if the sampling and statistical methodology were improved.
ISSN:0147-6580