Manufacturing PMI signals growth for first time in five months: https://www.thehindubusinessline.com/economy/manufacturing-pmi-signals-growth-for-first-time-in-five-months/article32493468.ece
Easing of lockdown improves factory performance, but employment continues to decline
A day after the announcement of the steepest contraction ever in GDP, there is something to cheer. Factories in India have shown the best performance in five months, with the Manufacturing Purchasing Managers’ Index (PMI) at 52 for August, against 46 for July. A reading above 50 indicates an overall increase month-on-month.
IHS Markit, the agency which prepares the index, said the expansion in PMI was a result of an improvement in customer demand as businesses reopened after the easing of lockdown restrictions. Output and new orders expanded at the fastest pace since February. However, the bad news is job cuts continued into August, extending the current sequence of jobs decline to five months.
Improving health
Shreeya Patel, Economist at IHS Markit, said the August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards a recovery from the second quarter downturn. The pick-up in demand from domestic markets gave rise to upturns in production and input buying, she added.
However, not all was positive in August. Delivery times lengthened to another marked rate amid the ongoing Covid-19 disruption. Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers.
“The rate of input price inflation was solid, following four monthly declines in cost burdens. Firms, however, continued in their efforts to drive sales amid greater competitive pressure and reduced their selling prices further,” Patel said.
Manufacturing has a share of around 15 per cent in India’s Gross Value Added (GVA). Despite the low share, it is considered the biggest provider of employment — directly or indirectly.
Supply chain disruption
According to the report accompanying PMI, supply chains were disrupted for the sixth consecutive month, with firms citing transportation restrictions, supplier delays and capacity pressures as the main drivers of lengthening delivery times.
Looking ahead, Indian manufacturers remained optimistic for the next 12 months. Positive sentiment was often attributed to hope of the passing of pandemic, improving client demand, and new business wins. Nevertheless, “market uncertainty and the onset of a global recession weighed slightly on the degree of confidence which was below the series average in August”, the report said.
PMI is prepared on the basis of responses from purchasing managers associated with around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.
Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. 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.