Solid rise in factory orders boosts manufacturing PMI in December

Signalling an uptick in manufacturing performance, the manufacturing purchasing managers’ index (PMI) for December came in at 52.7, rising from 51.2 in November 2019, a private survey showed.

This marked pace of the Indian manufacturing output in December was the joint fastest in ten months, IHS Markit said.

However, owing to a weak performance in October and November, the average quarterly reading for Q3 in 2019-20 was the lowest since the three months to September 2017.

Four of the five sub-components of the PMI increased in December, while Suppliers' delivery times was unchanged from the preceding survey period.

New work increased solidly, with the pace of expansion picking up to the fastest pace since July. The uptick in total sales was supported by higher demand from overseas. New export orders expanded for the twenty sixth month in a row, albeit modestly.

On average, production is expected to expand in the coming 12 months, but the degree of optimism weakened to a 34-month low, IHS Markit said.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said:

"The uptick in Indian manufacturing sector growth signalled by the latest PMI results will be welcomed by policymakers, particularly given the concerning results observed in October. Factories benefited from a rebound in demand, and responded by scaling up production to the greatest extent since May. There were also renewed increases in input purchasing and employment during December.

However, a note of caution is evident from the survey's measure of business confidence. The degree of optimism signalled at the end of 2019 was the weakest in just under three years, reflecting concerns over market conditions, which could restrict job creation and investment in the early part of 2020.

At the same time, price indicators showed accelerated rates of inflation for both input costs and output charges. The latter reflected a combination of improved pricing power, given the favourable demand environment, and efforts to protect margins from cost rises."

Despite the improvement in operating conditions during December, companies were cautious regarding the year ahead outlook.