What is PMI data? How PMI affects the forex and stock markets
What is PMI data, and why do traders often underestimate its role in market trends? Trading expert Michael Stark explains how this leading indicator compares with lagging indicators and what it reveals about forex, stocks, and commodities.
The Purchasing Managers’ Index (PMI) is not usually considered an essential release for most major CFDs, so traders often overlook it to some extent. When asking what is PMI data, or what any other type of market data is, for that matter, traders are often viewing it from the perspective of scalping or day trading around the release itself. I think this is quite difficult to do with PMI most of the time, but there are certainly exceptions to that. In my experience, PMI can be very useful for long-term trading, and I’ll be expanding on that in this article, as well as looking at a case of trading PMI in the short term.
In the most recent episode of Exness Trading Talks, Antreas and I discussed PMI and its role in finding possible changes in trends, specifically for industrial commodities such as crude oil. Here, I’m going to focus on what is PMI data within the context of trading forex and stocks. If you’ve not watched the podcast yet, here’s the summary and link to view it.
Key takeaways
- PMI is a leading economic indicator. The Purchasing Managers’ Index (PMI) is a forward-looking survey that offers valuable insights into business conditions, helping traders anticipate trends in economic growth, expansion, or contraction.
- Manufacturing and services sectors each have their own PMI data. Most global economies publish both manufacturing PMI and services PMI. Manufacturing output is especially important for economies like China, while service PMIs reflect economic performance in countries such as the UK.
- Chinese manufacturing PMI strongly influences commodities. A lower or higher PMI reading in China often impacts oil, iron ore, and other industrial production, signaling possible market shifts in global economies and future economic activity.
- Service PMI shapes market movements in equities. Rising services PMI can point to stronger performance in banks, retailers, and the services sector, showing purchasing managers’ responses reflect broader economic trends and business performance.
- PMI rarely moves financial markets instantly, but signals future economic conditions. Unlike the NFP, GDP, or the Consumer Price Index, PMI is not always a trigger for immediate price action in forex or stocks. However, as part of fundamental analysis with multiple indicators (like unemployment rate, inflation rate, or supply management data), PMI provides early signals of future events and helps business decision makers and investors make informed trading decisions.
What is PMI data? Manufacturing and service PMI
Purchasing managers’ indices, which traders call “PMIs” for short, are monthly surveys completed by purchasing managers at relevant companies in the private sector. Although S&P Global does produce an official global PMI, national PMIs are usually more important because their contents are specific and relevant for trading currencies, shares, and more. Here, I’m going to concentrate specifically on the USA since that’s the largest economy by GDP and the most important for traders, but most of the information here also applies to other countries’ PMIs too.
Every month, data providers such as the ISM or S&P Global, send a survey to all relevant purchasing managers asking about overall conditions and new orders, employment, stock of raw and finished material, imports and exports, and other relevant information. The two main providers in the USA, the Institute for Supply Management (‘ISM’) and S&P, provide headline PMI–all industries and companies combined–and manufacturing and service PMIs, among others. Usually, the S&P’s flash PMIs come out in the last week of the month they cover, and the ISM’s main figures are released during the first week after the covered month. However, the exact dates can vary because of holidays. For accurate release timing, traders often consult the economic calendar.
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Calculating PMIs
PMI calculation uses a dynamic factor (also known as a diffusion index) to express the proportion of expanding, unchanged, and contracting businesses. If every respondent to the survey was expanding, the PMI would read 100. If all respondents were unchanged, the figure would be 50, and if all reported contraction, it would be 0. Figures above 50 mean overall expansion, and below 50 mean overall contraction. For more information on the formulae and coverage of each PMI, you can visit the provider’s website. S&P also produces a useful comparison of its own PMIs and those of the ISM.
Having basically answered the question of what is PMI data, I think it’s important to consider some of its limitations. As surveys, PMIs are potentially limited by the consistency of respondents. For example, purchasing managers are asked to account for seasonality in their responses, but it’s impossible to guarantee that all will do so using a unified approach. Equally, PMIs don’t consider the degree of confidence: one strongly expanding business should, in theory, counterbalance two mildly contracting ones of similar size, but PMI doesn’t account for this. As with anything else in fundamental analysis or trading generally, I think it’s essential to use PMIs with some caution and compare them with other uncorrelated data.
PMI as a leading and lagging indicator
Traders try to classify economic indicators as leading or lagging mainly to determine their reliability for estimating what’s going to happen in the future. Leading indicators, which usually include PMI and the NFP, are more important for upcoming conditions, but lagging indicators, such as GDP, are also useful for classifying recent conditions and determining the accuracy of signals from leading indicators. Using leading, lagging, and coincident indicators in practice can be a lot more complicated than this, but here I’ll outline the core of how and why PMI is a leading indicator.
Part of the reason traders consider PMI a leading indicator is that it comes out every month with a minimal delay from receipt of the inputs to publication. PMI can function as a leading indicator of inflation and, indirectly, tightening monetary policy. I think one of the most notable examples in recent years was the PMI increase that followed the Fed's 2020 decision to adopt a very loose monetary policy.
The American headline PMI rebounded strongly from the initial shock of COVID, and reached a high in December 2020. When I saw that happening, I thought this was an early indicator that commodities might continue to recover strongly from the crash earlier in 2020 and inflation would increase steadily. That turned out to be mostly correct, but this was an exceptional case of extremely strong quantitative easing, so many traders would have expected rising inflation sooner or later, regardless of what the PMI was showing.
PMI’s influence across markets
Speaking as a position trader as well as an investor in deliverable assets, I think that PMI is among the useful tools for confirming the overall long-term direction of stock markets. A clear example of that for me is the British service PMI from S&P Global compared with the FTSE 100.
A PMI figure that is reasonably above 50 or at least not significantly below 50 for an extended period usually gives me more confidence in buying shares and indices. I don’t think this is a precise signal, more of a general indication. It might take a while for an index to recover after a downturn, but I’m normally more confident that it will happen sooner rather than later when the PMI is clearly positive, as was experienced by the FTSE 100 in spring-summer 2024.
I think PMI is one of the most relevant economic indicators for attempting to predict recessions. Consistently declining PMI for several months is, in my experience, a pretty reliable indicator of an upcoming or deepening recession. However, I always combine this information with other factors like yield curves, GDP trends, jobs, and any other possible factors. Notable historical examples for the USA include the Great Crash of 1929 (although PMIs in the modern sense of the term weren’t available then), the 1973 oil crisis, the dotcom bust of 2000, and COVID in 2020.
What is PMI data’s importance for forex?
PMI is usually important for forex primarily because of its indirect effect on monetary policy, as noted above. Consistently higher PMI can suggest rising inflation, which the relevant central bank would normally want to bring down if it goes above 2% by hiking rates.
Personally, I think scalping or day trading forex around PMI specifically is quite difficult because individual PMI releases aren’t generally the most important figures on the calendar. That said, American PMIs almost always occur very close to other major events such as the NFP. I’ll explain why I find it difficult to isolate the short-term impact of PMI on forex relative to other major events.
Positioning around major releases of PMI
July 2025’s ISM manufacturing PMI came out an hour and a half after the NFP for July. Both figures were broadly disappointing, but the NFP more so, resulting in the EURUSD making significant gains in the immediate aftermath:
The Total Nonfarm payrolls figure for July was 73,000, which missed the consensus by more than 35,000, and the previous two months’ NFPs were revised sharply downwards. EURUSD’s immediate reaction was a strong gain. In this context, the ISM manufacturing PMI, although disappointing at 48 compared to the 49.5 expected, was essentially a sideshow. The EURUSD surged more than one and a half cents in less than two hours.
1 August was an exceptional case in that such revisions to job data are very unusual, but it remains unlikely for a PMI single release to counteract the effects of an NFP unless the former presents a genuinely huge surprise. Even when PMI comes out in the context of less important releases, I think it’s still challenging to isolate its particular impact from the other data. With this in mind, let’s look at August’s ISM manufacturing PMI here:
August’s ISM manufacturing PMI came out on 2 September, five hours after the eurozone-wide flash annual inflation for August. The latter release was slightly higher than the 2% expected at 2.1% while PMI was slightly lower, 48.7 compared to the consensus of 49. Traders also considered the context of surging yields from many countries’ bonds amid an ongoing sell-off. I believe it is challenging to position yourself specifically for PMI in this situation because the overall context is much more important than that specific release.
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Final thoughts: What is PMI data, and how does it affect your trades
I personally think that PMI is much more useful in practice for long-term traders than for scalpers and day traders because a strong reaction to an individual release is the exception, not the rule. When I ask myself, “what is PMI data and what does it mean for my trading?” Looking at trends in PMI is key, but I don’t think it’s possible to find a consistent strategy for applying news trading PMI releases. That’s just my opinion, though: if you have a consistently successful approach to trading PMI in the short term, that’s fantastic, keep doing that if it’s working for you.
If you want to follow long-term forex trends, Exness is a great place to do so because most major and minor forex pairs are swap-free. To start developing your strategy integrating PMI, sign up and explore the possibilities.
What is PMI data: Frequently asked questions
What is PMI data?
PMI is a monthly activity tracking survey for purchasing managers at relevant companies in the private sector. A figure above 50 from PMI indicates expansion, and below 50 indicates contraction.
How do I use PMI as a trader?
When it comes to using PMI for trading most instruments, I believe that the most effective approach is to study the resulting trends to try to predict economic growth or contraction. This, in turn, is an indirect way to predict future monetary policy. Consistently high PMI suggests growth, higher inflation, and gains of the relevant currency and index. However, the opposite can also occur.
What should I trade around PMI?
I don’t personally think that PMI is a good release to trade as a scalper or day trader: job reports and meetings of central banks are, in my view, a lot better for that. However, it’s possible to trade oil around the Chinese PMI. For more discussion of this, please watch the relevant section of the latest Trading Talks.
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