Manufacturing PMI slides to 50.8, job shedding accelerates

Our Bureau New Delhi | Updated on June 01, 2021

PMI is a weighted average of new orders, output, employment, suppliers' delivery times and stocks purchases.

Purchasing Managers’ Index for the manufacturing sector slipped to 50.8 in May from 55.5 in April, economic research agency HIS Markit reported on Tuesday. This indicates that local lockdowns on account of the pandemic have affected the manufacturing activities in various States.

As manufacturing activities slowed down, job loss accelerated in May from April. Apprehension is that it might increase further.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said that the Indian manufacturing sector shows increasing signs of strain as the Covid-19 crisis intensifies. Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the slowest increase in ten months. In fact, all indices were down from April.

PMI data are released monthly in advance of comparable official economic data. It is compiled from 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 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. The headline PMI is a 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).

The report accompanying PMI said that firms scaled up production volumes during May, but the pace of expansion was modest in historical data. In fact, the rise was the weakest in the current ten-month period of growth. Anecdotal evidence indicated that the upturn was curbed by the escalation of the pandemic and difficulties in securing raw materials. Although new export orders also increased at a softer rate, the upturn was solid and outpaced the long-run series trend.

Talking about the loss of employment, De Lima said: “Amid a lack of new work, goods producers reduced headcounts again, with the rate of job shedding quickening in May.” Explaining it further, the report said that Covid-19 restrictions and a lack of new work led companies to reduce their payroll numbers further. As a result, the decline in employment was slight but accelerated from April.

Though De Lima opined that the detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown when unprecedented contractions had been recorded.

"Growth projections were revised lower, as firms became more worried about the escalation of the pandemic and local restrictions. The overall degree of optimism towards the year-ahead outlook for output was at a ten-month low, a factor which could hamper business investment and cause further job losses,” she said.

Published on June 01, 2021

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