Manufacturing PMI slows in December; still second highest in 2018

Factory production took a breath in December as the Manufacturing Purchasing Managers’ Index (PMI) slowed down a bit to 53.2 in December as against 54 in November. However, it is still in expansion mode.

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 eight broad categories: basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles and clothing, timber and paper, and transport. Index over 50 shows expansion, while below 50 mean contraction.

Prepared by IHS Markit, this index is widely quoted to explain latest industrial situation in a nation.

Robust quarter

According to the report, the health of India’s manufacturing economy improved further at the end of the year, as companies continued to scale up production and employment in response to strong inflows of new business.

The December data also brought news of a notable slowdown in input cost inflation, to a 34-month low, which translated into broadly no change in factory gate charges. The index was consistent with a further improvement in operating conditions across all sectors. The latest figure was the second greatest in 2018 and contributed to highest quarterly average since Q3 FY 2012.

According to Pollyanna De Lima, Principal Economist at IHS Markit, the Indian Manufacturing PMI indicated that the sector ended 2018 on a high, with growth stronger than seen at the start of the year.

Output continued to rise strongly, in line with a robust upswing in sales. Companies benefited from the rising international demand for Indian goods, as export orders expanded for the fourteenth straight month. “It’s particularly encouraging to see the quarterly PMI average climb to its highest mark since Q3 FY 2012, suggesting that the sector made a robust contribution to GDP,” she said.

Job worries

“Spare capacity was evident, with vendors’ delivery times unchanged and input cost inflation softening. These signs of easing inflationary pressures indicate that we’re likely to see the RBI adopt an accommodative monetary policy stance in early 2019,” she said and added that the job creation had weakened, probably due to cautious hiring decisions made by companies ahead of the general elections in 2019.

The report also said that growth of new work remained robust at the end of the quarter, with the upturn the second-quickest since December 2017. Companies that experienced greater inflows of new orders mentioned expanded client bases, stronger demand and fruitful advertising. International markets also contributed to sales growth.

Despite easing from November, the rise in production was among the quickest seen in 2018. Firms suggested that greater sales and technological progress supported the increase in output.

Growth was curtailed by competitive pressures, labour issues and challenging public policies. Employment continued to expand in December, but companies still signalled increased volumes of work-in-hand. The upturn in jobs was the slowest in four months, while backlogs were accumulated to the quickest extent since May.

Holdings of manufactured goods in India decreased again at the end of the year as firms sought to fulfil orders from stocks. The pace of depletion was solid and the joint-fastest in three months, the report noted.

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