Manufacturing PMI. Manufacturing PMI: India’s May factory activity remained strong at 54.7 despite inflation worries

Purchasing Managers’ Index (PMI) for manufacturing sector changed a tad to 54.7 in May against 54.6 registered in April. According to the latest report, labour market has improved in the manufacturing sector and is strongest since January last year.

“India’s manufacturing sector sustained strong growth momentum in May. Thanks in part to the sharpest rise in international sales for eleven years, total new orders expanded further. In response to demand resilience, companies continued with their efforts to rebuild stocks and hired extra workers accordingly,” Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence said.

Compiled by S&P Global, PMI indicates changes in the manufacturing sector. This along with PMI for services is used as an important tool to assess the health of overall economy.

Released on Wednesday, latest data points to a sustained recovery across the sector. The above-50 reading was the eleventh in as many months and consistent with a solid improvement in operating conditions.

Demand showed signs of resilience last month, improving further despite an uptick in selling prices. “Companies reported a marked increase in total new orders that was broadly similar to April. May data also highlighted a notable uptick in growth of new export orders. The rate of expansion was sharp and the fastest since April 2011,” S&P Global said in a statement.

On the labour market, the report said the manufacturing sector jobs rose further in May, owing to ongoing improvement in sales. The rate of employment growth also picked up to the strongest since January 2020. It may be noted that manufacturing sector has a share of around 14 per cent in gross value added (GVA) and provides multiplier effect in job creation.

The report also mentioned that manufacturers continued to scale up production in May amid reports of new business gains, sustained improvements in demand and softening Covid-19 restrictions.

The rate of growth was marked above trend and broadly in line with growth recorded in April. Indian manufacturers signalled a further increase in output prices halfway through the first quarter of FY23.

According to De Lima, while firms appear to be focusing on the now, the survey’s gauge of business optimism shows a sense of unease among manufacturers. The overall sentiment was the second-lowest seen in two years, with panellists generally expecting growth prospects to be harmed by acute price pressures.

“There was little-movement in the rate of input price inflation during May, which remains historically high, but output charge inflation surged to its highest in over eight-and-a-half years as companies continued to transfer additional cost burdens to their clients,” she said.

PMI survey methodology

PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to gross domestic product (GDP).

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

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