Manufacturing PMI falls to 7-month low of 55.4 in March

Manufacturing Purchasing Managers’ Index (PMI) for India dropped to 55.4 in March as against 57.5 in February. Though this is seven-months low and growth has lost some momentum, still latest reading was indicative of a substantial improvement in the health of the sector that outpaced the long-run series average.

Another bad news is that job creation is still in deceleration mode.

PMI data are released monthly in advance of comparable official economic data. Prepared and released by HIS Markit, it is considered as one of the key high frequency economic indicators. Manufacturing sector has a share of around 15 per cent in GDP (Gross Domestic Products). It is one of key sources of employment.

Commenting on the latest PMI number, Pollyanna De Lima, Economics Associate Director at IHS Markit, said. “After starting 2021 on a stronger footing than it ended 2020, the manufacturing sector lost further growth momentum in March. Production, new orders and input buying expanded at softer rates.” However, in all three cases, the increases were sharp and outpaced their respective long-run averages.

Manufacturing PMI is compiled from 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 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. 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).

Challenging April

“Survey participants indicated that demand growth was constrained by the escalation of the Covid-19 pandemic, while the rise in input buying was curtailed by an intensification of cost pressures,” Lima said. while predictions that the vaccination programme will curb the disease and underpin output growth in the year ahead meant that business confidence remained positive, growing uncertainty over the near-term outlook due to a rise in Covid-19 cases dragged sentiment to a seven-month low.

“With Covid-19 restrictions expanded and lockdown measures re-introduced in many states, Indian manufacturers look set to experience a challenging month in April,” she said.

Talking about employment, the report accompanying index said that it declined in March, taking the current sequence of job shedding to a year. The rate of contraction was modest, but the quickest since September 2020. Panellists indicated that the fall stemmed from Covid-19 restrictions related to workforces. Despite the reduction in payroll numbers, outstanding business rose only marginally.

It also found business confidence waned in March. While some firms foresee output growth in the coming 12 months, the vast majority predicted no change from present levels. Where optimism was signalled, this was commonly pinned on hopes that Covid-19 controls would ease.