PMI Index - VLC Invest

The Purchasing Managers’ Index shows signs of a possible economic halt.

Is it a good time to invest in real estate? Will the Spanish real estate sector reaching its highest point? Is another economic crisis or recession imminent? Should you wait a couple of months to buy a home?

These are the questions asked by our clients every day. However, we cannot provide a 100% correct answer, as to do so we would need a crystal ball allowing us to look into the future.

Within the last months of the 1T-19, we have observed there is more uncertainty at the time someone chooses to invest in active real estate, especially in Valencia.

In order to know if we find ourselves in a possible recession period, we need to keep various factors and indicators in mind, such as economic and political indicators.

An important index we bear in mind is «Purchasing Managers’ Index” (PMI), which paints a global image of the state of each country’s service and manufacturing sectors.

The PMI is based on monthly polls conducted within the largest and most representative companies found in each country. The questions this poll aims to answer are the following: (1) new orders, (2) stock, (3) production, (4) offers and (5) employment. The PMI ranges between 0-100. When the index is above 50, the country is in a period of expansion, but on the contrary, when the index falls below 50, the country finds itself in a period of economic shortage. The following is as follows:

PMI = (P1 × 1) + (P2 × 95) + (P3 × 0)

P1 = % responses that show economic improvement.

P2 = % responses that show economic change.

P3 = % responses that show economic decrease.

Within the PMI there are sub-indexes that show, for example, the evolution of unemployment and inflation.

In the following graphs, we find the PMI index in 2018, and the 1T-19 in the Euro-zone, the U.S. and in Spain.

As seen above, during the first trimester of 2019, the PMI index tends to decrease in all three graphs, although the Spanish PMI is the only of the three that increases above 50 in all graphs during the month of March. The data provided by the PMI is not positive, as also shown by the drop in the 10-year American Bonds, falling below the 3-year American Treasury Letters. Nonetheless, it is too soon to tell whether we will be facing another economic fall.