Definition of the term business activity index
What are they talking about business activity indices
PMI
Business Activity Index Faktura.ru
However, the main disadvantage of constructing stock indices based on a continuous sample is the problem of liquidity. The fact is that the last contract price is usually used to calculate the index. However, for some shares agreements may not be implemented for a long time, and the stock exchange index in such cases begins to “lag behind life”. If there are a lot of such shares, then the index becomes inertial and poorly meets the needs of investors.
The third problem in constructing a stock index is related to the fact that the market situation is constantly changing - bankruptcies, mergers and acquisitions occur, new organizations emerge that are rapidly increasing their capitalization. On the other hand, the longer the history of the index, the greater its value - you can trace the reaction of the stock market in the past to certain events in different macroeconomic conditions, which provides good grounds for predicting further market movements. For this reason, a dilemma arises: if changes are made rarely, then the index begins to “lag behind the market,” if often, the index “loses history,” i.e., while maintaining the same name, it actually begins to reflect changes in another market sector. Therefore, from time to time, stock markets change the composition of the index - they remove some indices and introduce others in their place. There are no formal criteria for changing the composition of the sample and taking into account changes occurring in the market; in practice, these issues are resolved by those calculating the index, with the involvement of authoritative experts.
Integral (composite) indices
Despite the relative simplicity and convenience of calculating stock indices, they do not always reflect the economic cycle and, accordingly, the current state and dynamics of business activity. This shortcoming is especially pronounced in developing countries and countries with economies in transition, where there are no pronounced economic cycles, there are no stock exchanges or they are just beginning to develop. In addition, the stock index reflects past events. But investors are primarily interested in what may happen in the near future.
Taking into account these limitations, so-called integral indices of business activity are increasingly used in international practice. When developing such an index, an attempt is made to combine several indicators into one, which, due to its generality, would predict economic cycles most clearly. Therefore, the index is designed to cover all the main components of business activity in a country: employment, production, income, consumption, trade, investments, stocks, prices, money And loan and etc.
The components of the index are selected based on their economic significance, statistical adequacy and the possibility of operational measurement and accumulate both quantitative and qualitative information on various industries and areas. Such indices have the properties of a leading (predictive) indicator and are able to indicate the moment of change in the trend in economic activity. This happens because surveys systematize the opinions of a large number of people who are professionally engaged in “their” business in different industries, who know and feel development trends.
The most well-known index of this group is the IFO Institute index in Germany, which monthly assesses the level of business activity, as well as expectations for the next six months. It is formed by surveying more than 7 thousand managers. When calculating the index to assess the business activity of a company, the following formulations are used: good; satisfactory; bad. And to express your business expectations: more favorable; unchanging; more unfavorable.
To calculate the index IFO Four sectors are examined that, through numerous surveys, have been recognized as sectors that form the “face” of business activity in Germany. These include: production of goods, construction, and retail(Fig. 2). Based on them, graphs are drawn up demonstrating an assessment of business activity and an assessment of business expectations.
After this, a vector of business activity trends and a vector of expectations in general for the four industries are formed. The vector of development of the business environment is “added” to them and as a result, three vectors are obtained that make it possible to give a comprehensive assessment of the state and development of business activity in the country as a result of measures taken to create a favorable business environment2.
In such indices, the most important question is how to interpret their graphical meaning? After all, the index graphs themselves IFO do not have the slightest impact on the market. They only reflect the psychological, if you like, upward or downward trend that is currently taking over the market.
In general, graphical models that have been identified and classified over the past hundred years reflect important features of the PSYCHOLOGICAL state of the market. First of all, they indicate what sentiment - bullish or bearish3 - is currently dominant in the market. And if these models worked in the past, there is every reason to assume that they will work in the future, because they are based on human psychology, which does not change over the years. We can formulate the main signal of the index: the key to understanding the future lies in studying the past. Or it can be completely different: the future is just a repetition of the past.
The semantic interpretation of the IFO index is carried out in points: the higher its value, the more favorable the economic forecasts. The index value can vary from 80 to 120; the level of business activity in 2000 is taken as 100. Changes in the index are tracked over time (on a monthly basis) and are given as a percentage. Numbers below 100 are an indicator of a slowdown in economic development compared to the base period (in our case, 2000) and are clearly considered by the market as a negative factor. A value above 100 shows growing optimism among entrepreneurs, which in turn causes the euro (EUR) to strengthen; SWISS FRANK().
The main purpose of the chart is to help recognize a trend and follow it throughout its entire period of existence.
In this case, a correct assessment of the possible time for a trend reversal is important. To do this, any important signal for an increase or decrease in the market rate must pass through the values of all indices. In other words, we can talk about the beginning of an upward trend only if the values of all indices have covered their previous intermediate peaks. If this happens with only one index, then it is too early to talk about an upward trend in the market. The signals should not, of course, absolutely coincide with each other, but the less they are separated in time, the more reliable. If there is a divergence in the dynamics of the indices, it means that the previous trend is still in effect and the nature of the market has not changed. In particular, the IFO index graph clearly shows the moment when all three graphs (business activity, business expectations and business environment) sharply went down from the second half of 2008, indicating a sharp change in the trend in a negative direction and thus symbolizing the beginning of the crisis .
Another tool for “measuring” business activity are ratings compiled by large consulting and international rating agencies based on surveys and studying the opinions of executives of large companies around the world. Such indices do not reflect daily, weekly or monthly changes in business activity and have a number of significant differences from stock and integral indices:
The rating specifies a classification criterion by which a phenomenon is ranked, while the index itself is a criterion for assessing the development of a given phenomenon in dynamics (i.e., a relative value);
Ratings, as a rule, have a universal methodology, which is based on the calculation of indicators with an unambiguous interpretation. Therefore this methodology can be used for different countries. At the same time, all known business activity indices “inevitably” have elements of originality in their methodology, since they reflect the development features and components of the business environment in each specific country.
The listed differences reduce the attractiveness of ratings from the point of view of an operational tool for assessing business activity. However, their value lies in the fact that they provide a comprehensive picture of development world economy and business around the world as a whole and for specific continents, regions, and countries.
It is critically important for governments and businesses to “take the long view” and act on the challenges and opportunities that exist today and may arise tomorrow. According to responses from managers of large companies to the annual PricewaterhouseCoopers (PWC) survey, 72% of respondents believe that the problem of natural resource shortages will only worsen over time. However, only 26% believe that increasing the efficiency of technology can solve this problem. This suggests that competition behind Natural resources(primarily energy) will grow in the long term and will lead to fierce competition for access to them and, accordingly, an increase in the profitability of resource sectors.
The results of such surveys make it possible to determine the growth prospects of markets and individual companies, the emergence of new types of products and new customers. To maximize return on investments in the long term, determine the general directions of development of the company, management needs to have an understanding of the risks and opportunities in different regions of the world, monitor the development of other companies both from the point of view competition, as well as cooperation opportunities in international markets. Gaining access to this “global perspective” is especially important for big business, working at the transnational level (and for those who are just planning to enter it), carrying out strategic investments, designed for the medium and long term.
At each stage of development, it is important for a business to understand what exactly is needed to “grow beyond itself.” What are the limitations of development and what is important to change to achieve the goal. The answers to this question are not always simple and unambiguous.
Let's give just a few examples. The ranking, based on a McKinsey Global Institute study, showed that a third of the gap in labor efficiency in the Russian Federation compared to the USA is explained by outdated production facilities. It would seem that a fairly simple conclusion suggests itself - it is necessary to modernize the existing capacities and thereby increase their productivity by 30%.
However, as the study shows, another important reason for the lag is ineffective labor. To produce a ton of rolled steel in the Russian Federation, 3 times more people are required than in the United States. Thus, even when investing in the modernization of the industry, success will largely depend on skillfully optimized business processes, reducing the number of personnel and redistributing labor.
At the same time, comparison with leaders (in certain markets, in certain industries), often called benchmarking today, provides important indicators - both for the business itself and for the state. Continuing with the example of productivity in the Russian steel industry, we can cite the following comparison made by McKinsey experts: “If productivity in the sector increases to the level of the United States in 2007, this could lead (taking into account the expected retirement of steel workers) to the release of about 140 thousand . workers by 2020." It is obvious that the government and business need to solve this problem together, developing adequate options in order to ensure as painless a flow of excess labor to other sectors of the economy as possible.
Attempts to “measure” business activity in Uzbekistan
In 1996-2003 The Center for Effective Economic Policy (CEEP, now the Institute of Forecasting and Macroeconomic Analysis under the Ministry of Economy), together with the State Committee on Statistics, conducted market research on the business activity of industrial enterprises.
When conducting the research, we used the method developed and used by the member countries of the Organization for Economic Cooperation and Development (OECD). It is based on a survey and generalization of the opinions of respondents (company managers) about the main activities of enterprises in comparison with the previous quarter and the forecast of the situation for the next quarter.
When processing questionnaires received from respondents on questions of a qualitative nature, the relative frequency of each answer option was calculated as a percentage. Next, the difference in the relative frequencies of positive and negative responses to questions representing an index of change was calculated.
1. Traditional, contained in similar foreign questionnaires. This was supposed to achieve comparability of the results of market research across countries;
2. Related to the peculiarities of the development of the economy of Uzbekistan.
The results of the study of business activity of industrial enterprises were summarized by industry in ten large industries: non-ferrous, chemical and petrochemical, mechanical engineering, metalworking, printing, construction industry, light industry, food, flour milling, forestry, woodworking and pulp and paper.
The assessment of economic changes at industrial enterprises was carried out in the following main areas:
Assessment of the economic situation;
Use of production capacity;
Benefits and privileges for foreign investors.
Production infrastructure;
Non-productive infrastructure.
The final list of indicators shaping the business environment can be formulated after joint consultations with a wide range of stakeholders, both among entrepreneurs and the expert community. Here, the support of such organizations as the Commercial and Industrial Banks annually conducts surveys to assess the business environment in Uzbekistan and therefore currently has the most complete “set” of expert assessments of the quality and components of the business environment in Uzbekistan.
The effectiveness of the impact of the business environment on business activity should be reflected in the dynamics of certain indicators (indicators of business activity). What should be the list of these indicators? It is still difficult to give a definitive list, but I think that the results of changes in the business environment in the industrial sector should be reflected in the dynamics of the following indicators:
Industrial production index volume;
Employment;
Investments;
Export;
Modernization.
It should be noted that some of the above indicators may be interdependent with each other (for example, investment and ). In addition, not all of them may reflect factors in the business environment. Therefore, additional analysis is required of 1) the relationship of these indicators with each other and 2) the connection of each of the indicators with each of the factors of the business environment. Such an analysis requires numerous calculations and the establishment of the so-called “closeness” of the connection, which in the expert community is generally called the “matrix of correlation coefficients.” And regression coefficients between various components of the business environment and the resulting indicators will allow us to determine the weight values of each of the business environment factors. This will allow us to “derive” the integral index of business activity in industry. In addition, the obtained coefficients correlations will make it possible to predict changes in business activity in the industrial sector in the short term.
After “testing” the construction of an index of business activity in industry, this experience can be multiplied by constructing similar indices in other industries and throughout the economy as a whole.
The dynamics of the listed indicators are supposed to be analyzed in quantitative (Goskomstat data) and qualitative measurements (surveys). Both quantitative and qualitative data will be generated from the same sample, which should reflect the characteristics of the general population. Taking into account the study of the IFC business environment, such a sample should include at least 500 representatives. However, the issue of determining the sample remains open and requires additional consultations with the expert community.
Since a significant part of the calculations will be based on Goskomstat data, which is formed primarily on a quarterly basis, it is advisable to also calculate the business activity index on a quarterly basis.
Only open dialogue and feedback with all stakeholders will help form the final vision of the business activity index, reflecting the current state and trends in business development in Uzbekistan.
Notes:
1 The very first average price of the Dow Jones Industrial Average (July 3, 1884) included only 11 stocks of different companies, 9 of which were railroads. In this form, the index successfully existed until 1897, and then was divided into two components: an index of 12 industrial companies and an index of 20 railway companies. In 1928, the index of industrial companies no longer included 12, but 30 stocks, and in 1929, an index of utility companies also appeared.
2 The indices of this group include the business activity index of the Association of Managers and the Kommersant Publishing House in the Russian Federation, the Japanese Tankan business activity index, etc.
3, these terms are used primarily to characterize the general direction of price changes in the stock market (i.e., trend) and mean the following: “Bullish” is increasing, and “bearish” is decreasing.
4 According to the IFC, since 1991, more than 16 thousand acts have been adopted in Uzbekistan aimed at creating a favorable business climate.
Stock indices of the USA, Britain and the Russian Federation
IFO business activity index ().
IFO industry and business survey, May 2009. (index, 2000=100, seasonally adjusted)
Sources
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Investor Encyclopedia. 2013 .
- - (business index) – an index characterizing the state of the economy or its individual sectors in a particular country, as well as the state of the investment market (see also Investment Index) at certain periods and points in time. Used in... ... Economic and mathematical dictionary
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Business Activity Index BUSINESS ACTIVITY INDEX- an index used in economic analysis, an indicator of types of activity, the dynamics of which reflect changes in the economic environment... Large economic dictionary
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Business Activity Index of the National Association of Service Industry Managers- in the USA, a monthly report on the results of a survey of managers in the service sector. The survey is organized to assess changes occurring in the service sector. In English: National Association of Purchasing Managers services index English synonyms: NAPM... ... Financial Dictionary
Federal Reserve Bank of Philadelphia Business Activity Index- monthly report on the results of a survey of manufacturers in Philadelphia (USA) regarding their attitude to the current economic situation. In English: Philadelphia Fed index See also: US macroeconomic indicators Financial Dictionary Finam... Financial Dictionary
an important economic indicator, compiled on the basis of a survey of a number of professional managers, regarding the improvement or deterioration of the situation in the main microeconomic indicators of the country’s economy
Definition of business activity index, types of business activity index, structure of business activity index, methodology for constructing business activity index, calculation of business activity index, publication of business activity index, interpretation of business activity index data, regional examples of business activity index, graphs of business activity index data of countries of the world
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Business activity index is the definition
Business Activity Index - This a report based on the results of a survey (managers) in the field, used to assess changes in industry volume, the number of new production orders, as well as the speed of work of suppliers, the purpose of which is to provide information on the formation of prices, business trends and the economy as a whole.
Business Activity Index - This general state of the economy, published monthly by managers and the Kommersant Publishing House.
Business Activity Index - This a special numerical indicator used in economics and used to reflect the state of a certain industry, the state of the economy, and assess the market situation.
What is the Business Activity Index? - This an index characterizing changes in economic conditions in various sectors of the economy.
Business Activity Index, what is it? - This a leading indicator generated in the form of a report based on the results of a survey of managers (purchases in the industrial sector).
Business activity index, where - This an aggregated purely subjective indicator that reflects only the participants’ perception of the current economic environment and business prospects.
Business Activity Index, where it is - This an indicator of business optimism among business participants, regularly published (under the names PMI) in the USA, England and, where it is created by the relevant associations and is used both to assess the direction of public opinion and to measure objective indicators.
What is the business activity index?
The term “business activity” began to be used in domestic accounting and analytical literature relatively recently - in connection with the introduction of methods widely known throughout the world based on a system of analytical coefficients. Of course, the interpretation of this term may be different.
Today, business activity is considered from three perspectives: the individual (micro level), the country (macro level). At the enterprise level, business activity is most often considered as the performance of the enterprise relative to the amount of advanced resources or the amount of their consumption in production. This definition practically combines the concept of business activity and operational efficiency.
From the position of sociologists, business activity is a set of actions that contribute to the economic growth of an organization (including the production and marketing system) based on the coordinated development of its components in harmony with the external environment. In a broad sense, business activity means the entire range of efforts aimed at promoting products, labor,... In the context of the analysis of financial and economic activities, this term is understood in a narrower sense - as the current production and commercial activities of the enterprise; in this case, the phrase “business activity” is perhaps not a completely successful translation of the English term “business activity”, which precisely characterizes the corresponding group of coefficients from the system of indicators.
United States Business Activity Index Review
US PMI chart
Euro Area PMI chart
China PMI chart
Japan PMI chart
Germany PMI chart
UK PMI chart
France PMI chart
Brazil PMI chart
Italy PMI chart
India PMI chart
Russian business activity index chart
Canadian Business Activity Index chart
Australian Business Activity Index chart
South Korea PMI chart
Spain Business Activity Index chart
Mexico PMI chart
Indonesia PMI chart
Turkey PMI chart
Saudi Arabia PMI chart
Sweden PMI chart
Methodology for constructing a business activity index
After calculating the results for each of the 10 listed categories, a diffusion index is displayed. Adjustments for seasonality are made only for four of the 10 points: business activity, new orders, employment and. With a core PMI reading of 50, purchasing managers' expectations for growth and decline are split in half. A reading above 50 indicates increasing activity, while a reading below 50 means activity is decreasing. From its earliest publications in 1998 to the present day, the ISM non-manufacturing business activity index has rarely fallen below 50%.
Components of the business activity index
Respondents are asked to answer questions about whether their business activity has increased, decreased or remained unchanged in 11 areas.
Service business activity (PMI)
Business activity is a criterion for changes in the level of business activity in the service sector. It presents the results of a survey of service industry managers to assess changes taking place in this industry. Figures below “45-50” are an indicator of a slowdown in economic development. Often the value of this index is influenced by psychological factors rather than the actual state of affairs. The process of consumption of services tends to change at a relatively constant speed, therefore psychological factors influence sharp changes in the value of this indicator. Therefore, when analyzing the index, special attention is paid to this. Its value is published on the first day of each month at 10:00 EST (New York) one day after the publication of the ISM index. Has limited impact on the market. An increase in the value of this index is a favorable factor for the growth of the exchange rate.
New orders
New orders - reflects changes in the number of new orders received from customers. The value of orders received by firms in sectors in which goods are made to order rather than first produced and then sold. These are primarily the construction industry and those manufacturing industries that sell capital goods. Changes in the volume of new orders are one of the leading indicators of changes in economic activity.
Production
The production index is a relative indicator characterizing the change in the scale of production in the periods being compared. The production index is used to analyze the dynamics of the physical volume of production. There are individual and consolidated production indices. Individual reflect the change in the output of one product and are calculated as the ratio of the production volumes of a given type of product in physical terms in the periods being compared. Composite indices characterize aggregate changes in all types of products and reflect changes in the value created in the production process as a result of changes only in the physical volume of products produced. The index is an aggregated production index for the types of activities “Mining”, “Manufacturing”, “Production and distribution of gas and water”.
Employment
Backlog of orders
Benefits of the PMI
PMI surveys are the first indicators of economic health published monthly, well ahead of comparable data released by government agencies. Among the advantages of the Index of business activity indices are the following:
Provide reliable, fact-based indicators, as opposed to indicators based on opinions or expectations;
Released faster and more efficiently than comparable official data;
Issued on a monthly basis;
Cover the economic activity of virtually the entire private sector in many countries (including the most important service sector);
Results are not revised after publication;
Data preparation and release uses identical methodology for all countries, allowing direct international comparisons.
Example of calculating the business activity index
In many cases, the benefits of the data offered by PMI reflect the lack of official statistics, including:
Unevenness of publications. Many government series, such as GDP, are published only quarterly, whereas the Index of business activity is published monthly;
Published late. Quite a long period of time passes before official data is published. The data provided by the PMI is several months ahead of the official data;
Revisions to official data after initial publication. Official data is subject to significant revision even after it has been published. Such revisions are a problem when making business decisions based solely on such statistics. In contrast, PMI data are not revised after publication, except in very rare cases of seasonal adjustment;
Lack of comparison possibilities with equivalent calculations used in other countries. Not all statistical institutes operate data using identical methodologies. In the Eurozone, for example, for calculating GDP they use a significantly different statistical methodology from that used in Japan.
As a result, the above problems lead to a situation where purchasing managers and economic analysts are forced to examine the current state of the industry using data that is already out of date at the time of issue, and may be significantly revised after the first publication, which in turn will raise doubts when comparing data for other countries.
Examples of regional business activity indices
Economic cycles represent a natural form of economic development and are divided into three phases:
Recession phase, i.e. decline in business activity, decline in production, employment and income;
The recovery phase, reflecting the rise in economic activity, the growth of market conditions, the increase in the issue of securities to the previous level after its fall that took place during the recession;
The development phase characterizing the continuation of economic growth after the recovery phase.
The main idea of compiling PMI indices is to show the cyclical dynamics of economic processes and reliably predict the turning points of cycles (recessions and rises), and therefore predict changes in business activity. Since the main motivation is the expectation of future profits, having positive forecasts, companies will expand the production of goods and services, increase investment in production capacity, etc. If a decline in income is predicted, the economic activity of companies decreases.
Historically, it has been noted that the maximums and minimums of indices precede economic reversals, i.e. downturn or upturn in the economic cycle. Thus, by tracking the behavior of the index, companies can make business decisions more effectively. In this sense, the business activity index can be called a “barometer” of the health of the economy and assessment of the prospects for its development in the short term. Therefore, indices are a good guide when making decisions both for economic entities and for analysts, scientists and politicians. In this case, indices may tend to outpace the overall dynamics or lag behind the main course of the economic cycle. On this basis, they are classified into: leading, lagging and coinciding economic indices.
PMI (Purchasing Managers" Index, USA)
We will consider in detail the structure and properties of business optimism indices using the example of the American Purchasing Managers Index (Index of business activity), NAPM. This is an indicator of business activity in the manufacturing sector of the US Institute of Supply Management. Until January 2002, it was called NAPM - after the name of the National Association purchasing managers (National Association of Purchasing Management).
The US National Association of Purchasing Managers releases an Index of Business Activity
Usually shortened to NAPM or PMI. The report presents the results of a survey of purchasing managers in the industrial sector (for services, which occupy about 40% of US GDP, a separate Index of business activity of the National Association of Service Managers is calculated - Index of business activity services index) and aims to study the influence of the economy on the formation of price space and provides high-quality information about business trends, in fact - this is for senior and middle management of the economy. This index is used to measure changes in new factory orders, industrial output, employment, as well as wholesale inventories and supplier speed.
The Index of business activity in the USA is calculated based on data from purchasing managers
Formal responses to survey participants' questions are limited to ratings of "higher" (more), "lower" (less) or "no change" compared to the previous month, and the respondent can also add their own comments. Each report component is compiled into a diffusion index, which is calculated as the sum of the simple percentage changes in the "above" and "below" values plus one-half percentage of the "same" or "no change" responses. The diffusion index can fluctuate between 0 and 100% with different range characteristics: a value of 50% means no change; above 50% - improvement; and below 50% means decline. The indicator is measured in % ranging from 0 to 100%, depending on the values of the components:
Weighting coefficients of purchasing managers' response categories in the Index of business activity
The resulting measure of business optimism is a composite diffuse index called the Purchasing Managers' Index (PMI), based on a weighted average of new orders, output, employment, lead times and inventories. Index of business activity indices are based on monthly research conducted among carefully selected companies.
To survey managers on the Index of business activity index, a careful selection of US companies is carried out
It provides early indicators of what is really happening in the private sector economy by tracking variables such as production, new orders, inventory levels, employment and prices in the industrial, construction and services sectors, as well as the . Index of business activity research is based on facts, not opinions, and is one of the earliest economic indicators released monthly. Data collection uses identical methods for all countries, allowing for international comparisons.
Comparison of graphs of Index of business activity index values in different countries of the world
The main property of the index is a leading indicator of the business cycle. There are a number of main indicator levels for interpretation: cyclical high and cyclical low; 50% - level; 44% - level. If, after a period of growth, the PMI turns downward, this predicts a downward reversal in the business cycle. On the contrary, if after a fall the PMI, having reached a minimum, turns upward, then this is a sign of future recovery.
A fall in the Index of business activity below 50 predicts a recession on average over two months, and a fall below 44 always predicts an absolute decline in economic activity. The minimums reached by the Index of business activity in the stages of recession are on average 35, and after a reversal from the minimum, on average over 4 months it reached the level of 44, which always coincided with the minimum of the economic cycle. Overall, the Index of Business Activity reliably predicts turning points in growth cycles (that is, cyclical changes in the growth stages of an economy), but it is difficult to distinguish a growth cycle from the overall global economic cycle.
Chicago PMI (USA)
Index of business activity in the manufacturing industry according to the Chicago Association of Managers. The index is based on results from a survey of industrial purchasing managers in Chicago. The indicator reflects the situation in the segment of production orders, product prices and wholesale stocks in warehouses. If the indicator falls below 50 bp, this indicates a slowdown in the pace of development of the US economy; if the index is above the 50 bp level, this indicates an increase. The Chicago Index of Business Activity is closely watched by traders because it is released shortly before the release of the Institute's national business optimism index (ISM Index). Based on the dynamics of the employment component within the Chicago PMI index, in particular, one can judge the upcoming report on the labor market (). The indicator value is published by the Purchasing Managers Association of Chicago on the last business day of each month.
Chicago Fed Midwest Mfg Index (USA)
Midwest Manufacturing PMI. The index is based on results from a survey of industrial purchasing managers in Chicago. The indicator reflects the situation in the segment of production orders, product prices and inventories in warehouses, adjusted for the territorial factor. Compared to the overall index, the Chicago Index of business activity for the country as a whole has a modest impact on Kansas City Fed Mfg index chart, USA for 2011-2015.
NY Fed Empire State index (USA)
New York Fed Business Activity Index. The index is based on the results of a survey of top managers and is provided by the Federal. The indicator reflects the situation in the segment of production orders and business optimism in the business environment.
Richmond Fed Mfg Index (USA)
Richmond Fed Business Activity Index. The index is based on a survey of top executives and is provided by the Federal Reserve Bank of Richmond. Philadelphia Fed index chart, USA for 1968-2015.
Chicago Fed National Activity Index (USA)
Chicago Fed National Business Activity Index. The index reflects the level of psychological comfort and satisfaction of American consumers with the situation in the state's economy. The indicator consists of two main components: characteristics of current conditions (sentiment index) and characteristics of expectations (expectations index). At its core, the University of Michigan Consumer Sentiment Index is one of the key barometers of the US economy, and therefore has a very strong impact on the US currency.
ISM (Institute of Supply Managers, USA)
ISM (formerly called NAPM (National Association of Purchasing Managers)) comes from the Institute of Supply Managers, an association that publishes a monthly "Report on Business" that provides an integral view of the state of the industry, expressed in the so-called "diffusion index". The ISM index is the American analogue of the European and Russian PMI (Product Manufactoring Index), which is calculated by the agency.
What is the ISM Business Activity Index?
Purchasing Managers' Index for the US manufacturing sector, calculated by the Institute for Supply Management (ISM). Reflects the state of business activity in the country's manufacturing industry. The indicator is based on a survey of purchasing and supply managers of 400 companies from 20 industrial sectors in various regions of the country, is published once a month and is not subsequently revised. The equilibrium level for this indicator is 50 points - if the index is above 50 points, business activity is expanding in industry. The index consists of the following components: index of new orders, production, employment, shipments, supplier inventories, customer inventories, prices, unfilled orders, new export orders, imports.
The US Non-Manufacturing Purchasing Managers' Index, calculated by the Institute for Supply Management (ISM). Reflects the state of business activity in the service sector, which forms about 90% of GDP. The equilibrium level for this indicator is 50 points - if the index is above 50 points, business activity is expanding in the service sector. One of the most significant components of the ISM Non-Manufacturing index is the employment component - a leading indicator of the key report on the labor market Non-farm Payrolls.
PMI (Markit Economics, Germany)
These indices show the state of the economy of the European Union and Germany as a whole. If the indicator grows and exceeds 50, then we can further draw conclusions about the improvement in the economic development of the countries of the European Union as a whole. If the indicator decreases and is below 50 and continues to decline to the level of 40, this indicates that the situation of the economies of the European Union countries is deteriorating and is in a recession.
The PMI index is published by the analytical agency Markit Economics and evaluates business and development conditions in the German manufacturing sector. This sector forms a large part of the final GDP indicator, which makes the PMI an important economic indicator of business conditions and the overall health of the German economy.
Graph of the composite index Index of business activity in Germany for 2013-2015.
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PMI (Purchasing Managers Index) business activity index in the manufacturing sector calculated based on data provided by purchasing managers on production volume items, new orders, inventory levels and employment. PMI is one of the key indicators of the state of the economy of the country issuing the indicator.
PMI Index Calculation
The PMI index consists of five important components, each of which has its own strictly fixed percentage ratio in the overall value of 100%:
- the number of new orders in the production segment (new orders), which are allocated 30%;
- the employment rate is 20%;
- production volumes 25%;
- inventory indicator 10%;
- activities of suppliers (supplier deliveries) 15%.
In order to determine the values of these individual factors that add up to the total percentage for a given period, all managers are asked a series of simple questions. In this case, the answers do not imply a detailed nature, but must correspond to the option used in the tests, that is, “yes”, “has not changed” and “no”.
The questions themselves are designed in such a way that the structure of the answers allows you to make an objective logical conclusion regarding the current indicator that the PMI index will demonstrate.
To compile the PMI manufacturing activity index, managers - survey participants - will be asked for their opinions regarding:
- intensity of production volumes (Production);
- number of new orders for export (New export orders);
- commodity value (Commodity prices);
- level of employment (Employment);
- deliveries (Vendor deliveries);
- import volumes (New import orders);
- the number of orders received from customers (New orders);
- volumes of goods for short-term deliveries (Items in short suddenly);
- state of the portfolio of unfulfilled orders (Order backlogs).
How does the publication of the manufacturing PMI affect exchange rates?
Exceeding value 50 indicates the growth of the manufacturing sector and is a positive factor for the national currency. A PMI reading below 50 indicates a slowdown.
PMI index in the manufacturing sector, it refers to survey or diffusion indices and allows you to track the dynamics of the economic cycle, being a leading indicator. The observed close correlation of the manufacturing PMI index with economic dynamics allows us to predict future growth rates.
It should be noted that the PMI business activity index should not be interpreted based on its momentary values. The specificity of its influence lies in the accuracy of determining economic cycles in the long term. So, for example, if the output value exceeds the 50% level, you can expect that the greatest increase in business cycles will be recorded after seven months.
It is also necessary to take into account that a decrease in value to 35% is a sure economic stagnation, which indicates serious problems in the country’s economy, which, naturally, will be directly reflected in the exchange rate of the national currency. At the same time, if the index remains above the 44% mark, then the reaction of investors will be ambiguous, since such values usually indicate the possibility of a rapid recovery, and, therefore, such data do not provide serious reasons for concern.
When are PMI manufacturing activity indices published?
Eurozone countries and Great Britain
- Publication date: twice a month (preliminary and final indexes)
- Source: Markit Economics
- Website: www.markiteconomics.com/Survey/Page.mvc/PressReleases
- Publication date: monthly
- Source: Institute for Supply Management (ISM)
- Website: www.instituteforsupplymanagement.org/ISMReport
China
- Publication date: monthly
- Source: Hongkong and Shanghai Banking Corporation
- Website: www.hsbc.com
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ISM Services Index is an index of business optimism in the services sector. This indicator characterizes the opinion of managers about the changes taking place in this industry. A value below 50 indicates a slowdown in economic development.
At 15:00 ISM data for the USA was released. Predicted value: 56.6. Actual value: 57.0. Since the actual value is higher than the predicted value, it should probably be expect growth exchange rate of the US dollar against other currencies. As you can see from the chart below, the USD/JPY exchange rate market reacted with growth dollar.
Rice. The impact of US data on the USD/JPY rate. The moment of data release is marked with an arrow.
Data release time:
Note: ISM is the former NAPM Services Index (National Association of Purchasing Managers Index).
Service Activity Index
The index represents the results of a survey of service industry managers to assess changes taking place in this industry. Values below 45 are an indicator of a slowdown in economic development. Often the value of this index is influenced by psychological factors rather than the actual state of affairs. The process of consumption of services tends to change at a relatively constant speed, therefore psychological factors influence sharp changes in the value of this indicator.
At 09:30 GMT data on the index of activity in the UK services sector was released. Predicted value: 51.0. Actual value: 54.5. Since the actual value is better than the predicted value, it should probably be expect growth reacted with growth pound.
Rice. Impact of UK data on the GBP/USD exchange rate. The moment of data release is marked with an arrow.
Data release time:
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PMIPMI - Purchasing Managers' Optimism Index - reflects the level of business activity in the country's industrial sector, in fact, the change in the pace of industrial production. An indicator value above 50% corresponds to growth, and below 50% to a slowdown in industrial production. At 09:30 GMT, UK PMI data was released. Predicted value: 58.0. Actual value: 58.3. Since the actual value is higher than the predicted value, it probably follows expect growth exchange rate of the pound against other currencies. As can be seen from the chart below, the market for the GBP/USD exchange rate reacted with growth pound.
Rice. The impact of UK data on the GBP/USD exchange rate. The moment of data release is marked with an arrow. Data release time:
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In the economy, in addition to direct indicators such as gross domestic and external product, industrial production growth or the value of the consumer basket, there are derivatives. Business Activity Index PMI is one of them, characterized by powerful calculations and research, but having an indirect impact on the economic sphere.
The business activity index is a conditional value showing changes in the behavior of structures and companies in the current economic situation compared to the previous reporting period - week, month, year. If an enterprise reduces production volumes, lays off employees, or closes branches, it is considered that the business activity index is declining. If production and sales grow, new markets open and the order portfolio increases, the business activity index grows.
The business activity index appeared in the United States in the early 20th century as Purchasing Managers Index(PMI). The pioneer of development and implementation was the Institute of Supply Management ( Institute for Supply Management, ISM), established in 1915.
Initially, its specialists called Tampa industrialists and asked one question: how are you doing?
There were three answer options to choose from: worse, better and the same. From this the conclusion was drawn: if the overwhelming majority of people are doing well worse last month, which means PMI is falling. If everyone has spoken" better“Consequently, the PMI went up. True, this method had a significant drawback: the subjectivity of businessmen’s judgments, as well as the influence of mood, unjustified hopes, and family troubles.
Specialists ISM decided to develop a methodology that would truly reflect the Index. In 1948, respondents were sent letters in which they were asked to “tweak” their performance indicators at the end of each month and compare them with the previous reporting period. Of course, the financial side remained secret, but businessmen received a kind of “funnel” containing data on:
- number of orders;
- volume of production;
- employment of the team;
- warehouse stocks;
- import and export prices.
This scheme has disadvantages. If the number of orders and output volume can be calculated, then employment is a conditional coefficient - often the respondent works alone from morning until late evening. Warehouse inventories in companies working “for the client” could be zero or one (whichever way you look at it), and few people cared about the price of imports and exports.
Business activity index in different countries
In 1951 the Bank Japan introduced an indicator TANKAN(短観), which became short for kigyō tan ki keizai kan soku chōsa - short-term economic forecast. It was based on the work of the West German Institute for Economic Research IFO. True, by 1957 the Japanese had developed an independent indicator, which retained the same name, but slightly changed the calculation method.
By the way, in Germany The Business Climate Index was launched in 1949. IFO is an acronym for I nformation (information) und F.O. rschung (research). The basis here was the American system, since the United States in the post-war years generously “exported” the foundations of its economic structure, calculation methods and indices to Europe.
It is no coincidence that IFO and PMI are extremely similar.
In Great Britain PMI appeared in 1991, and here it really concerned purchasing managers. The old-world lions reasoned that it was these specialists who saw the greatest state of the market. True, the indicator developed by the Royal Institute of Purchasing and Supply of Great Britain was soon transferred to the operational management of Markit Ltd.
In Russia there is Entrepreneurial Confidence Index, calculated by the Federal State Statistics Service. It is published monthly, over 4 thousand medium and large enterprises from three sectors of the economy: “Mining”, “Manufacturing”, “Production and distribution of electricity, gas and water” participate in the survey.
On average, the Index is 47-48% (which indicates business uncertainty), but does not have any impact on the Russian economy.
Impact of the Business Activity Index
Over time, PMI has moved from being a theoretical indicator to conditionally applied. Without having a significant impact on asset prices or derivative prices, PMI shows investor sentiment and expectations. In the same States, PMI is calculated in only two versions - industrial and services - and the number of respondents is slightly more than 700.
The Bank of Japan initially tried to include everyone it could: in 1957 there were 524 respondents, and in 2015 there were already more than 11 thousand from 93 sectors of the economy. Considering that TANKAN Published quarterly and with an entire institute working for it, the rating from time to time undergoes “buying” of companies, exclusion of sectors, and revision of formulas. But there are also ratings calculated in prefectures!
The British economy has a huge influence on the market. Markit Ltd, which calculates the index for 34 countries. In 2009, it was launched in China under the name Caixin PM, and differs in its composite design. The calculation includes about 400 enterprises, both industrial and service sector. And two years earlier, in 2007, Markit LTD launched a composite Eurozone PMI index.
A decrease in the business activity index in the country should alert a trader investing in the instruments of this state. We are talking about a slowdown in economic growth, which means we can conclude that a recession is coming. When news comes out about a decline in IDA, it is advisable to sell existing assets and transfer funds to developing instruments.
A decrease in the Index in the United States entails a fall in dollar quotations towards its main competitor - the euro. At the same time, quotes of manufacturing companies and government bonds are declining - they are the first to come under attack. It is difficult to say how urgent it should be to get rid of depreciating assets: the IDA is similar to a pendulum and shows constant decline and growth.
First of all, as in any other macroeconomic statistics, attention is paid to dynamics. If it is positive (that is, the current indicator value exceeds the previous one), then the value of the asset/currency may increase. If business activity decreases (negative dynamics are observed), this may provoke a depreciation in the price of the asset/currency. It is important to understand that the longer the trend, the more significant the reaction may be. If the business activity index continues to decline from month to month, this may indicate that it will also decline.
What else should you pay attention to when working with business activity indices? It is believed that if this indicator is above 50 basis points, it means that overall business activity is in the growth zone. If the indicator drops below 50 points, then there is a reduction in business activity.
- investments in competing assets;
- sale of assets and investment in them after N-time (after reduction in price);
- transfer of funds to assets less dependent on IDA - food, telecommunications.
Trader's actions when IDE grows:
- investments in the real sector of the economy - it always becomes more expensive;
- working with currency pairs against a competing currency;
- attracting derivatives with bullish play.
Video about business activity index
Formula for calculating the Business Activity Index
American PMI is calculated as the sum of estimates of five business factors: PMI = 30% (orders) + 25% (production) + 20 (employment) + 15% (supplies - that same import and export) + 10% (inventory). The figure obtained during the sample is compared with the figure of 50% (“golden mean”). If it is less, PMI falls, if it is more, it rises. Publication - 1st of every month.
In Germany the IFO index calculated according to the American model, but set on a scale from -100 to +100. The reporting period is 2000, when the PIIGS problems had not yet affected the Eurozone and Germany was not faced with a monstrous debt burden. The index is published at 08:00 German time (-2 hours in Moscow) on the last working day of the month.
Sweden PMI calculated since 2009, representatives of 200 companies participate in the survey. It is similar to the American methodology, but here orders are allocated 35%, sales volumes 25%, employment and deliveries - 20% each. The index operator is SwedenBank; the world does not particularly listen to the Scandinavian PMI: the state is not a key player and is not even a member of the European Union.
In Japan TANKAN is published twice a year, at the end of June and December at exactly 08:50 (14:50 Moscow time), 10 minutes before the start of stock exchanges. This is done to influence trading in the beginning half of the year and determine the dominant - bulls or bears. Remarkably, it only includes one digit. Extended information, with explanations and reports, will be released in a week or two.
In the Land of the Rising Sun, two types of surveys are used within TANKAN: quantitative (the larger the company, the more significant its word), and qualitative, where each respondent has one vote. When calculating the index itself, the diffusion principle is applied, where the arithmetic mean of the listed surveys is taken.
Instead of output
It is believed that the Business Activity Index has an indirect effect on the economy, as it is too vague and incorrect. Although a competent investor, monitoring the macroeconomic situation, may notice a direct connection. For example, in February 2015, the published statistics of China dropped the indices of the Asia-Pacific region. MSCI Asia Pacific lost 0.3%, NIKKEI - 0.7%, Shanghai Composite - 2.6%.
In 2013, Germany, having published the IFO, brought the euro-dollar pair below 1:1.3, which was regarded by investors as losing its position as the “locomotive of Europe”. And in February 2016, Chinese statistics, the worst since 2012, drove up prices for gold, silver and futures in the United States. Then ETF funds got involved and began to dump palladium and platinum, which led to a fall in prices.
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