Manufacturing PMI rises to 54.9 in February

The manufacturing sector put up a strong performance in February as the Purchasing Managers’ Index (PMI) rose to 54.9 in February from 54 in January. However, this has not resulted in fresh job creation, rather the number has fallen.

“February PMI data showed another improvement in the health of the Indian manufacturing sector as firms responded to strong increases in new work intakes by lifting production, input buying and stocks of purchases,” said IHS Markit, which prepares the index on the basis of a survey. Manufacturing has a share of over 15 per cent in Gross Value Added (GVA) and is considered a job multiplier. PMI is one of the high frequency indicators, that shows how the economy is performing.

This number has come at a time when economic growth during the January-March quarter is estimated to have slipped. Also, with the rising crisis on account of the Ukraine-Russia conflict likely to affect overall exports, manufacturing is expected to witness strong headwinds in March.

Growth in output, new orders

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said  output and new orders expanded at stronger rates, while buying activity continued. At the same time, sustained increases in backlogs could lead to higher employment levels in the months ahead, should capacity pressures continue.

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“There were, however, some key concerns that continue to threaten growth. Most prominently, costs pressures remained elevated as a result of shortages, while delivery times lengthened once again. However, a key threat to manufacturers comes from marginal increases in the selling price. Despite expenses rising sharply, firms passed on only part of the burden to clients, suggesting pressure on profit margins,” she said.

An important factor is that despite an improvement in the overall manufacturing sector, employment creation is yet to see better days. The report said m there were some signs of capacity pressures at Indian manufacturers, with backlogs rising marginally. “Despite this, and a pick-up in demand, employment decreased. The overall rate of job shedding was only fractional, however,” it said.

However, one of the positive factors, as De Lima said, is that manufacturing sector has weathered the storm of the Omicron variant, undoubtedly supported by the relatively high inoculation rate. Moreover, “demand conditions have showed notable signs of resilience and price pressures have receded,” she said.

PMI is based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. 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 headline PMI is the weighted average of the following five indices: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent). 

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