Economy

PMI for Manufacturing back in expansion mode in July at 55.3

Our Bureau New Delhi | Updated on August 02, 2021

July sees first rise in employment since onset of Covid-19

Reaffirming the ongoing economic rebound in the country post the countrywide Covid-19 unlocking, Manufacturing PMI for July 2021 hit a three-month high of 55.3 as against 48.1 in June.

Another piece of good news on the latest July print is that companies went for fresh recruitment after a gap of almost 15 months.

Manufacturing has a share of over 14 per cent in gross value added (GVA).

It may be recalled that the Purchasing Managers Index for Manufacturing, as prepared by IHS Markit, had slipped into contraction in June for the first time in 11 months. “Operating conditions in India improved during July, after growth was halted by the escalation of the pandemic in June,” the agency said.

Bringing the economy back on track

The indices vary between 0 and 100, with a reading above 50 indicating an overall expansion compared to the previous month, and below 50 an overall contraction.

“Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local Covid-19 restrictions. Should the pandemic continue to recede, we expect a 9.7 per cent annual increase in industrial production for calendar year 2021,” Pollyanna De Lima, Economics Associate Director at IHS Markit, said in a statement.

PMI data is 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.

Ways to kickstart economic activity

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 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).

Good news on job front

One of the notable results of the survey is the development on the job front. “In tandem with sales growth and rising production requirements, manufacturers hired extra workers in July. The increase in employment was mild but ended a 15-month sequence of job shedding,” the agency said.

De Lima noted the positive development but was not very sure about continuous addition. “Although marginal, the rise in employment was the first since the onset of Covid-19. With firms’ cost burdens continuing to rise, however, and signs of spare capacity still evident, it’s too early to say that such trend will be sustained in coming months,” she said.

The agency also said that companies purchased additional inputs for use in the production process. “With demand for inputs outstripping supply, there was another substantial increase in purchasing prices. The rate of cost inflation remained above its long-run average, but eased to a seven-month low,” it said.

De Lima said that policymakers will welcome evidence that inflationary pressures are starting to abate. Firms signalled the slowest increases in input costs and output charges for seven months. Hence, “we expect the RBI to keep interest rates unchanged in its August meeting as it continues to support growth,” she said.

Published on August 02, 2021

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