Factory output growth stumbles in May after rising for 3 straight months

GDP figures also showed manufacturing in the slow lane with

Growth in factory output continued in May but at a lesser pace from the previous month, due to softer demand and slower export, after a faster rise for three straight months.

The widely tracked Nikkei purchasing managers’ index (PMI) survey said May also showed a decline in the pace of growth for jobs in manufacturing; it was marginally positive.

Accordingly, the report’s author expects the Reserve Bank of India (RBI) to change its policy stance in the coming months from the present ‘neutral’ to ‘accommodative’, to spur the economy.

PMI in May was at a three-month low of 51.6, compared to 52.5 in April and in March. A reading above 50 indicates expansion; below that shows a contraction. So, manufacturing continued to expand but at a slower pace.

This news follows that from the latest gross domestic product data, which showed manufacturing growth falling to 5.3 per cent in the fourth and final quarter of 2016-17, down sharply from 12.7 per cent in the corresponding period of the previous financial year (2015-16). Demonetisation was said to be a prime reason. 

By the PMI data, the manufacturing sector had grown in March at its fastest pace in five months, marking a third straight month of expansion, on a surge in domestic and export orders. 

“The upturn in the Indian manufacturing sector took a step back in May, with softer demand causing slower expansion in output and the amount of new work received by firms. Moreover, there was a renewed decline in new export orders,” said Pollyanna De Lima, economist at IHS Markit and author of the report.

The latest data showed new work rising at the weakest pace since February, with slowdowns evident in the consumer and intermediate goods categories. Capital goods producers recorded a contraction in their order books. Output growth across the manufacturing sector was at a three-month low.

Businesses did increase their purchasing activity during May. Moreover, the upturn in buying levels was more pronounced than in April. Subsequently, stocks of purchases rose, with the pace of accumulation the quickest in the current three-month sequence of growth, the report said.

On the other hand, holdings of finished goods decreased in May, as companies sought to fulfil orders from stocks. The rate of depletion was sharp and the most pronounced since August 2015.

Amid reports of the non-replacement of voluntary leavers and shortage of suitable labour, growth in manufacturing jobs also decreased in May. The fall in staff numbers was centred on the intermediate goods category, with marginal growth elsewhere.