At 56.4, manufacturing PMI at 8-month high

Manufacturing sector showed an impressive growth in July as Purchasing Managers’ Index (PMI) surged to 8-month high of 56.4. It was at 53.9 in June. However, despite better performance job situation was subdued.

Manufacturing industry’s good performance is critical for growth of overall economy. Also, it provided large number of employment with having multiplier effect on services.. At present, share of manufacturing in Gross Value Added (GVA) is over 14 per cent. PMI is prepared by S&P Global and based on survey among 400 managers. Index above 50 shows expansion, while below 50 means contraction.

Commenting on latest number, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said that the The Indian manufacturing industry recorded a welcome combination of faster economic growth and softening inflation during July. “Output expanded at the fastest pace since last November, a trend that was matched by the more forward-looking indicator new orders,” she said. Further she mentioned that although the upturn in demand gained strength, there were clear signs that capacity pressures remained mild as backlogs rose only marginally and job creation remained subdued.

 “Purchasing activity growth ticked higher in July and firms were successful in their efforts to obtain inputs amid a second consecutive improvement in supplier performance. This in turn supported a near-record increase in inventories of raw materials and semi-finished goods as well as a softer upturn in input costs,” she highlighted.

Demand pick up seen

The upturn in manufacturing sector was broad-based by sub-sector, and led by investment goods. Those panellists that reported higher output volumes mentioned better demand conditions and a pick-up in sales. Aggregate new order intakes rose substantially in July, reclaiming the growth momentum lost in June. The latest increase was, in fact, the most pronounced since last November, with quicker expansions recorded in all three broad areas of the manufacturing industry. Although international markets contributed to the latest upturn in total order books, there was a noticeable slowdown in external sales. New export orders rose at a moderate pace that was the weakest in the current four-month period of growth.

Job scenario

Another important factor is creation of job. The Survey found that despite the solid performance of the manufacturing industry, overall job creation remained subdued. The latest increase in employment was marginal and broadly similar to those seen in the current five-month sequence of growth. “The vast majority of firms (98 per cent) opted to leave workforce numbers unchanged amid a lack of pressure on operating capacity,” survey result said.

Another factor that constrained hiring activity was future uncertainty. Despite improving from June’s 27-month low, the overall level of business sentiment was muted in the context of historical data. In fact, 96 per cent of manufacturers forecast no change in output from present levels over the course of the coming 12 months.

However, the good news is that pressure of higher prices has come down. De Lima said, “With incidences of shortages diminishing, the rate of input cost inflation eased to an 11-month low in July, subsequently dragging down the rate of increase in output prices to the weakest in four months.”