As a leading indicator, what does a decline in the PMI suggest?

A decline in the Purchasing Managers' Index (PMI) serves as a leading indicator for economic performance. Specifically, it suggests a potential recession. The PMI measures the economic health of the manufacturing sector and reflects the sentiment of purchasing managers regarding their business conditions, including new orders, inventory levels, and employment.

When the PMI declines, it indicates that purchasing managers are becoming less optimistic about future business activity, which often correlates with slowing economic growth. A persistently low PMI can signal that the economy is contracting or that there may be a downturn ahead, as reduced orders and lower production levels can lead to decreased business investment and employment. Thus, a drop in the PMI is typically interpreted as a warning sign of potential economic challenges, including a recession.