Job-shedding by firms dampens manufacturing recovery in November

Manufacturing sector saw a modest upturn in November 2019 going by the latest IHS Markit India Manufacturing PMI print at 51.2 up from 50.6 in the previous month, a private monthly survey showed on Monday. The October reading was a two year low.

Although the performance improved in November 2019 on the back of new orders and output increase, factories were clearly less optimistic about the future as they have shed jobs for the first time since March last year.

Anecdotal evidence suggested that growth was supported by the launch of new products and better demand, though restrained by competitive pressures and unstable market conditions.

This is the 28th consecutive month that the manufacturing PMI has remained above the 50-point mark. The 50-mark threshold separates expansion and contraction.

The latest reading was below the survey average (53.8) and indicated only a slight improvement in the health of the sector.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "After pulling back noticeably in October, manufacturing sector growth displayed a welcoming acceleration in November."

Still, rates of expansion in factory orders, production and exports remained far away from those recorded at the start of 2019, with subdued underlying demand largely blamed for this.

"Some level of uncertainty regarding the economy was evident by a subdued degree of business optimism. Also, companies shed jobs for the first time in over a year-and-a-half and there was another round of reduction in input buying. The weakness of these forward-looking indicators suggests that firms are bracing themselves for challenging times ahead,” Pollyanna de Lima said.

PMI data continued to show a lack of inflationary pressures in the sector which, combined with slow economic growth, suggests that the RBI will likely extend its accommodative policy stance and further reduce the benchmark interest rate during December, de Lima added.

Consumer goods provided the main impetus to overall growth, while the intermediate goods category returned to expansion territory. Conversely, there was a solid deterioration in operating conditions at capital goods makers.

Manufacturers were partly helped by external markets, as signalled by a further expansion in international sales. The increase in exports was slight, however, and among the weakest.

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