Manufacturing PMI eases a tad to 56.2 in August

Manufacturing Purchasing Managers’ Index (PMI) for August dropped a tad to 56.2 from 56.4 of July, showing second-strongest improvement in operating conditions since last November.  Also, the impact of inflation has come down.

“Factory orders rose at the quickest pace since last November, reportedly boosted by strengthening demand conditions, new client wins and fruitful advertising. International markets gave impetus to total sales, as seen by a marked and quicker increase in new export orders halfway through the second fiscal quarter,” a statement by S&P Global said.

Read also: All you wanted to know about Purchasing Managers’ Index

Manufacturing has a share of over 14 per cent in Gross Value Added (GVA) and considered critical for overall economic growth and employment. PMI is one of the high frequency indicator, released in advance of official numbers on growth. It is compiled by the S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. 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.

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Softer commodity prices

Commenting on the latest number, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said that Indian manufacturers continued to benefit from the absence of Covid-19 restrictions, with growth rates for output and new orders picking up yet again to the strongest since last November. “This robust performance was complemented by a fourth successive monthly slowdown in the rate of input cost inflation, which slipped to the lowest in a year amid softer pressures from commodity prices. Factory gate charges rose at the second-weakest pace since the start of fiscal year 2022/23, one that was similar to July,” she said.

The statement mentioned that contributions to the PMI from sub-indices varied as faster increases in new orders and output compared with slower expansions in employment and stocks of purchases. Delivery times, which is inverted before entering the calculation, shortened to the greatest extent in close to five years.

Production performance

Indian manufacturers reported the fastest increase in production in nine months, attributed to greater sales, enhancing capacities, fewer Covid-19 restrictions and product diversification. Similarly, factory orders rose at the quickest pace since last November, reportedly boosted by strengthening demand conditions, new client wins and fruitful advertising. International markets gave impetus to total sales, as seen by a marked and quicker increase in new export orders halfway through the second fiscal quarter, it said.

Fading inflationary concerns

The latest results indicates fading away of inflationary concerns, as business sentiment strengthened further from the June’s 27-month low. The degree of optimism was at its highest in six years boosting the confidence in August on predictions of stronger sales, new enquiries and marketing efforts.

De Lima said firms welcomed the weaker input costs with an upward output forecasts amid renewed hopes that contained price pressures will help boost demand. “Inflation concerns, which had dampened sentiment around mid-year, appear to have completely dissipated in August as seen by a jump in business confidence to a six-year high,” she said. Official estimate of firm gate and retail inflation are to be made public between 12 and 14 of this month.

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