The headline number of the Purchasing Managers’ Index (PMI) for manufacturing slipped to 55.5 in December from 57.6 of November. Still, the quarterly (October-December) reading was at 56.3, its highest since the final quarter of fiscal year 2020/21. However, the job situation deteriorated again in December.

“The health of the Indian manufacturing industry improved further in December, with growth of new work and production remaining sharp in spite of losing momentum,” IHS Markit said in its report on PMI. Manufacturing has an over 14 per cent share in Gross Value Added (GVA) and is considered a source of job multiplier. PMI is one of the high frequency indicators, showing how the economy is performing.

Commenting on the latest survey results, Economics Associate Director at IHS Markit, Pollyanna De Lima, said the last PMI results of 2021 for the Indian manufacturing sector were encouraging, with the economic recovery continuing, as firms were successful in securing new work from domestic and international sources. Higher sales underpinned a further upturn in production and companies carried on with their restocking efforts.

"Manufacturers were optimistic that output would continue to increase in 2022, but business sentiment was somewhat tamed by worries surrounding the path of the pandemic, inflationary pressures and lingering supply chain disruptions,” she said.

Talking about the employment situation, the report said that pending trends were mixed, with employment falling fractionally in response to a lack of pressure on capacity, but firms purchased additional inputs amid restocking efforts. Buying levels increased substantially in the latest month.

According to De Lima, there were tentative signs that inflationary pressures had started to subside, but companies weren't particularly confident that such a trend would continue. Despite easing in December, input cost inflation was still running at one of its highest rates in around seven-and-a-half years. “The vast majority of firms nevertheless decided to keep their selling prices unchanged in order to boost sales, with overall charges up only marginally in December,” 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 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).

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