Manufacturing PMI slips to unprecedented 27.4 in April

The Covid-19 pandemic brought about unprecedented contraction in the manufacturing sector, as Purchasing Managers Index (PMI) slipped to 27.4 in April as against 51.8 in March. This is the sharpest deceleration in the index since the beginning of data collection for PMI.

"After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April. In the latest survey period, record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions,” Eliot Kerr, Economist at IHS Markit said.

Further, he added there was evidence of unprecedented supply-side disruption, with input delivery times lengthening to the greatest extent since data collection began in March 2005. "There was a hint of positivity when looking at firms' 12-month outlooks, with sentiment towards future activity rebounding from March's record low. That said, the degree of optimism remained well below the historical average," he concluded.

Manufacturing PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. 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. The headline figure is the PMI which 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 latest figure of PMI reflects how two phases of lockdown affected economic activities, especially manufacturing. Almost two-thirds of economic activities came to stand still for 40 days period. Now even with graded opening starting on Monday might not bring the desired result so soon because of supply chain issue, reverse migration of labour and closure of point of sales in key consumption hubs.

IHS Markit said that in an environment of severely reduced demand, the new business collapsed at a record pace and firms sharply reduced their staff numbers. Meanwhile, both input costs and output prices were lowered markedly as suppliers and manufacturers themselves offered discounts in an attempt to secure orders. An unprecedented contraction in output partially drove the decline in operating conditions. Panellists often attributed lower production to temporary factory closures that were triggered by restrictive measures to limit the spread of COVID-19.

Amid widespread business closures, demand conditions were severely hampered in April. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey's history, far outpacing that seen during the global financial crisis. Total new business received little support from international markets in April, as new export orders tumbled. Following the first reduction since October 2017 during March, foreign sales fell at a quicker rate in the latest survey period. In fact, the rate of decline accelerated to the fastest since the series began over 15 years ago. Deteriorating demand conditions saw manufacturers drastically cut back staff numbers in April. The reduction in employment was the quickest in the survey's history. There was a similar trend in purchasing activity, with firms cutting input buying at a record pace.

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