In the PMI and NMI survey, what is the implication of inventories index?

  1. In the PMI and NMI survey, inventories possess two economic implications: When the company is optimistic (pessimistic) about future economic situations, it takes initiative to increase (decrease) inventories; on the other hand, when product sales is poor (better than expected), the company’s inventories will passively increase (decrease). Therefore, changes in this indicator should be complemented by observations of other indicators in order to grasp the economic implications.
  2. The “inventories’ of manufacturing refer to inventories purchased by companies for production, while “customers’ inventories” refer to finished product inventories already sold to customers. When the interviewed company deemed customers’ finished product inventories to be too high, it means the market demand may decrease, or it may be an indication that downstream clients take initiatives to increase inventories, as they are optimistic about future economic situations. On the contrary, when the customers’ inventories are too low, it means the market demand may increase, or it could also be that downstream clients are cautious towards the economic situation, thus they reduce the inventories.
  3. As for non-manufacturing, since it relatively lacks the concept of physical inventories, the significance of inventories to non-manicuring is mainly to input products or equipment to cater to business activities. “Inventory Sentiment” on the other hand refers to requesting respondents to subjectively evaluate whether products or equipment input by the company to provide services is excessive or lacking (i.e. the service provision capacity is excessive or lacking). If the evaluation shows they are excessive, it means the service provision capacity exceeds market demand; if the evaluation shows they are lacking, it means the service provision capacity is less than market demand.
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