Manufacturing activity grows in September on strengthening demand: PMI

The IHS Markit PMI for manufacturing rose to 53.7 in September from 52.3 recorded in August, highlighting a stronger expansion in overall business conditions

Manufacturing activity in September grew with strengthening demand conditions amid the easing of Coronavirus (Covid-19) restrictions even as pricing pressure intensified due to raw material shortages and rising fuel costs.

The IHS Markit Purchasing Managers Index (PMI) for manufacturing rose to 53.7 in September from 52.3 recorded in August, highlighting a stronger expansion in overall business conditions. A reading above 50 indicates expansion and one below that shows contraction. The PMI reading was 55.3 in July.

“Indian manufacturers lifted production to a greater extent in September as they geared up for improvements in demand and the replenishment of stocks. There was a substantial pick-up in intakes of new work, with some contribution from international markets,” said Pollyanna De Lima, Economics associate director at IHS Markit.

The growth in September was backed by stronger new order inflows, and companies scaling up input buying to accommodate rising sales and progress with production schedules. The uptick in input buying came on the back of anticipation that production would increase in the year ahead.

International demand for Indian goods also strengthened in September, although some firms saw the Covid-19 pandemic restricting international sales. New export orders expanded at a faster rate than in August, the survey showed.

Manufacturing sector employment saw little change as government guidelines surrounding shift work prevented hiring for firms.

After subsiding in the previous two months, cost inflationary pressures intensified in September. Strong demand for scarce products and rising fuel and transportation rates contributed to the increase in input costs.

Rising fuel, raw material and transportation prices pushed the overall rate of input cost inflation to a five-month high. Output prices, however, increased at a slower and only moderate rate, the findings show.

"Only a small proportion of this additional cost burden was passed on to clients, however, as seen by a slower and only modest increase in factory gate charges." Pollyanna De Lima said.

The survey also found diverging trends regarding stocks. Pre-production inventories rose at a substantial pace as firms sought to ensure that current and future demand needs are met. Holdings of manufactured goods continued to fall sharply amid the immediate dispatch of items to clients, it said.