At 56.4, manufacturing PMI at 8-month high

The manufacturing sector showed impressive growth in July with the Purchasing Managers’ Index (PMI) rising to an 8-month high of 56.4. It was at 53.9 in June. However, despite the better performance, the career situation was poor.

A well-functioning manufacturing industry is crucial to the growth of the overall economy. It has also provided a large number of employment opportunities which have a multiplier effect on services.. At present, the share of manufacturing in gross value added (GVA) is more than 14 percent. PMI was compiled by S&P Global and based on a survey of 400 managers. An indicator above 50 shows expansion, while below 50 means contraction.

Commenting on the latest figure, Poliana de Lima, associate director economics at S&P Global Market Intelligence, said that India’s manufacturing industry posted a welcome mix of faster economic growth and subdued inflation during the month of July. “Output expanded at the fastest pace since last November, a trend offset by a more forward-looking indicator of new orders,” it said. It further noted that although demand had strengthened, there were clear signs that capacity pressures remained moderate as backlogs rose marginally and job creation remained subdued.

Purchasing activity growth picked up in July and companies were successful in their efforts to obtain input amid a second consecutive improvement in supplier performance. This, in turn, supported a near-record increase in inventories of raw materials and semi-finished goods, as well as a softer increase in input costs.

Demand captures seen

The recovery in the manufacturing sector was broad by subsector, and led by investment commodities. Participants reporting higher production volumes reported better demand conditions and a rebound in sales. Total new orders rose significantly in July, regaining growth momentum lost in June. The latest increase was, in fact, the most pronounced since last November, with faster expansions recorded in all three broad areas of the manufacturing industry. Although international markets have contributed to the recent rise in total order books, there has been a notable slowdown in overseas sales. New export orders rose at a moderate pace, the weakest in the current four-month growth period.

Job scenario

Another important factor is job creation. The survey found that despite the strong performance of the manufacturing industry, overall job creation remained weak. The recent increase in employment was marginal and broadly similar to that seen in the current five-month growth sequence. The results of the survey stated that “the vast majority of companies (98 per cent) chose to leave workforce numbers unchanged amid a decrease in pressure on operational capacity.”

Another factor that has constrained hiring activity is the uncertainty of the future. Despite improving from a 27-month low in June, the overall level of business confidence was weak in the context of historical data. In fact, 96 percent of manufacturers expect no change in production from current levels over the next 12 months.

However, the good news is that price hike pressure has lessened. “As shortages wane, input cost inflation eased to an 11-month low in July, dragging the rate of increase in output prices down to the weakest level in four months,” de Lima said.