Diffusion Index

A diffusion index measures how widely a change is spread across respondents rather than how large it is. Each respondent reports direction only — better, the same, worse — and the index combines those answers so that a reading above the neutral level means more respondents reported improvement than deterioration. Purchasing managers' surveys are the best-known example, and their neutral level is 50. The consequence is that a diffusion index says nothing directly about magnitude. A reading a fraction above neutral means slightly more firms saw an increase than a decrease; it does not say whether the increase was small or large, and it cannot be converted into a growth rate without a separate model fitted to history. What the construction supports is the direction of travel between readings, which is why these surveys are read as breadth measures alongside the quantitative series they run ahead of.