Manufacturing output falls at 50-month low

HSBC's PMI slips to 50.1 in May from 51 in April

India’s manufacturing output in May fell for the first time since March 2009 — one of the worst affected months during the global economic slowdown — according to HSBC’s Purchasing Managers’ Index (PMI), released today.

After a ten-year-low economic growth rate of five per cent seen in 2012-13, the contraction in manufacturing output could suggest the so-called green shoots of recovery might, after all, be some distance away.

PMI has managed to stay on the growth path but that is because, besides manufacturing output, it also covers orders and outlook. In May, the index fell to a 50-month low of 50.1 points, from a 17-month low of 51 the previous month (a reading above 50 points indicates growth, while that below 50 signifies a contraction in industry).

Markit Economics, the financial information firm that compiles PMI, attributed the output contraction to persistent power outages and a reflection of weaker orders. However, output dropped a little, it said.

Leif Eskesen, HSBC chief economist for India & Asean, said: “Economic activity in the manufacturing sector slowed further, as output contracted in response to softer domestic orders. Besides, power outages hit production and led to a jump in backlogs of work, as businesses struggled to meet orders.”

Order book volumes rose for a 50th straight month, but the rate of expansion was marginal. However, backlogs of work rose significantly and at the quickest pace in five months.

Respondents to the PMI survey suggested demand was maintained, though competition for new work increased and the overall market conditions, particularly at home, turned tough.

Markit Economics pointed out, though buying activities had increased last month (as has always been since April 2009), the rate of expansion was moderate — the slowest in the past 20 months.

However, foreign orders during the month rose at a high pace. Growth in export business was robust and the fastest since January, Markit Economics said.

Meanwhile, though not steep, input prices saw a rise, while firms lowered prices of finished products for the first time in four years. The surveyed firms mentioned that the prices of oil, diesel, chemicals and machinery parts had all increased, but added they had paid lower prices for metals and plastic.

Eskesen said the inflation numbers had heightened the probability of RBI firing “another salvo” at its June policy meeting.

The PMI numbers do not always correspond with official numbers, because the index uses month-on-month data, while official figures in the country are based on year-on-year figures.