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Conceptual Perspectives on Selecting the Principal Variables in the Purchasing Managers' Index
Author(s) -
Cho Danny I.,
Ogwang Tomson
Publication year - 2006
Publication title -
journal of supply chain management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.75
H-Index - 92
eISSN - 1745-493X
pISSN - 1523-2409
DOI - 10.1111/j.1745-493x.2006.00011.x
Subject(s) - purchasing , index (typography) , principal component analysis , principal (computer security) , diffusion , supply management , variable (mathematics) , computer science , business , operations management , econometrics , operations research , statistics , marketing , economics , mathematics , mathematical analysis , power (physics) , physics , quantum mechanics , world wide web , thermodynamics , operating system
SUMMARY The current research investigates the choice of principal variables for computing the Purchasing Managers' Index (PMI). To this end, the principal components variable selection strategy considered by Jolliffee (1972, 1973) is applied to monthly data on five key diffusion indexes for the period from January 1948 to October 2004, compiled by the Institute for Supply Management (ISM). Results do not support the ISM's current practice of assigning different weights to the five diffusion indexes (i.e., the highest weight to the new orders diffusion index and the lowest one to the inventory diffusion index). Findings also support that a simpler PMI based solely on the employment diffusion index, one of the five key PMI indicators, can be computed without loss of too much information. In many cases, the PMI series offered in this paper outperforms the PMI series proposed by others.