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VOLUME
1, NUMBER 6, 2002
AUTHOR:
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Evan
F. Koenig
Vice President and Senior Economist, Federal Reserve Bank of Dallas
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TITLE:
Using
the Purchasing Managers’ Index to Assess the Economy’s Strength and the
Likely Direction of Monetary Policy (PDF)
ABSTRACT:
When economists are concerned that the economy may be about to
change direction, one of the indicators to which they give special scrutiny is
the Purchasing Managers’ Index (PMI), released monthly by the Institute for
Supply Management. This article discusses the construction and interpretation
of the PMI and presents evidence of its usefulness as an indicator of
growth in the manufacturing sector and the economy as a whole, and as a
predictor of changes in Federal Reserve policy. PMI values above 47 generally
signal expansion in manufacturing, while the critical value for positive
GDP growth is around 40. Over the past fifteen years, PMI values above
52.5 have tended to be associated with rising short-term interest rates.
SUGGESTED
CITATION:
Koenig, Evan F. (2002), “Using the Purchasing
Managers’ Index to Assess the Economy’s Strength and the Likely Direction
of Monetary Policy,” Federal Reserve Bank of Dallas Economic and Financial
Policy Review, Vol. 1, No. 6, http://dallasfed.org/research/efprpdfs/v01_n06_a01.pdf.
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