Manufacturing PMI jumps to 11-month high of 54 in November on strong demand

Factory production accelerated further in November as the manufacturing purchasing managers’ index (PMI) rose to 54 against 53.1 in October. This index is prepared on the basis of a survey which is conducted among purchasing executives in over 400 companies.

These companies are divided into 8 broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. Index over 50 shows expansion while below 50 mean contraction. The index is prepared by IHS Markit and released along with a detailed report. This index is widely quoted to explain the latest industrial situation.

According to the report, manufacturing conditions strengthened for the third successive month in November, as healthier inflow of new orders encouraged companies to lift production and input buying to a greater extent than in October. Cost inflation moderated, but the revival in demand translated into improved pricing power among producers who raised their charges at a quicker rate. Elsewhere, job creation was sustained while the sentiment picked up.

The latest figure signalled strongest improvement in the health of the sector in almost one year. Buoyed by strong demand conditions and higher sales, manufacturers increased production at the second-fastest pace since October 2016. The rise was led by intermediate goods firms, although robust growth was also seen in the consumer and capital goods categories.

Pollyanna De Lima, Principal Economist at IHS Markit, said that the Indian manufacturing sector continued to recover from the ground lost in August, with November seeing the headline PMI climb to an 11-month high. Relatively weak demand environment seen earlier in the year showed signs of abating, with clients unfazed by another round of increase in output prices and placing more orders regardless. Correspondingly, goods producers rebuilt raw material stocks to guard against possible delivery delays and fulfil contracts.

Manufacturers further drew down their finished goods stocks to meet demand. This, coupled with improved business sentiment, should ensure that production continues to rise at a robust clip as the country heads towards 2019.

“Signs of rising confidence in the upturn were also provided by the trend for employment, which continued to grow at one of the quickest rates seen in six years. Supply-chain pressures remained weak, which, however, supported a softer rise in input prices,” she said.

The survey highlighted better employment scenario. Job creation was sustained in November, which panel members linked to strong inflows of new work. Despite easing slightly from October, the pace of employment expansion was among the strongest registered in the past six years. The sharpest rise was noted in consumer goods, followed by capital and then intermediate goods.

The report mentioned that production growth in India jumped to over two-year high. According to panelists, the upturn was supported by improved demand and better market conditions. Rates of increase accelerated in the consumer and intermediate goods categories, while a marginal slowdown was noted in capital goods sector. As was the case for production, new businesses rose at the second-fastest pace since October 2016.

Anecdotal evidence highlighted successful marketing campaigns and stronger underlying demand as the key factors boosting sales. For the fifth month in a row, growth was noted in each of the three monitored sectors and led by intermediate goods makers.

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