Manufacturing PMI highest in four months at 52.6 in May despite stagnant hiring

Input inflation rises with RBI expected to cut rates

Manufacturing activities in May grew at the fastest pace in four months, showed the widely-tracked HSBC Purchasing Managers’ Index (PMI).

Manufacturing PMI rose to 52.6 points in May from 51.3 in April. This was the highest PMI reading in 2015, but for January’s 52.9.

A PMI reading above 50 shows expansion, while one below that indicates contraction.

Gross domestic product (GDP) figures on Friday showed that manufacturing activity rose 7.1 per cent in 2014-15, against 5.3 per cent in 2013-14. The outlook for 2015-16 remained uncertain as April data showed moderation in manufacturing growth compared with March, and May showed high growth recovering somewhat. Manufacturers did not hire additional hands due to the uncertainty of continuing growth.

A commentary associated with the PMI survey joined the chorus for a rate cut by the Reserve Bank of India on Tuesday, even as input inflation was higher in May.


A look at manufacturing activities in other Asian countries indicated India witnessed the highest growth in May. China saw contraction for the third month in a row; South Korea witnessed the fastest rate of fall in manufacturing output since August 2013; Japan barely managed to come out of contraction.

The sharpest rise in manufacturing output was reported by producers of consumer goods. PMI data was not in sync with the Index of Industrial Production, which continued to show weakness in consumer goods, particularly durables. PMI also showed an increase in capital and intermediate goods’ production. The higher output was due to improved demand from domestic and foreign markets.

The volume of new work received increased for the 19th successive month and at the quickest pace since January. This growth was led by capital goods’ producers. However, the PMI survey did not give a break up of rural and urban demand, making it difficult to gauge if rural distress had abated.

Overseas demand also rose, though the rise moderated. This was mainly reflected in a reduction in foreign orders received by investment goods firms. Merchandise exports contracted for the fifth month in April, said the official figures. The contraction of economic activities in the US for the first quarter of 2015 would also impact India’s exports sector.

Despite the uptick in growth, manufacturing employment was broadly unchanged in May. Over 99 per cent of the panelists reported unchanged staffing levels, on uncertain growth sustainability. Pollyanna De Lima, economist at Markit Economics, a compiler of PMI data, said, “The outlook for the sector is, however, clouded by a stagnant jobs market as firms remain uncertain about the sustainability of an upturn.”

Input price inflation quickened in May, but remained weaker than the series average. Manufacturers reported higher purchasing costs for chemicals, energy, metals and textiles.

Following a reduction in the previous month, output prices were raised in May. That said, the latest increase in factory-gate prices was only slight. Any rise in charges mainly reflected increasing input costs. “Input cost inflation ticked higher and output prices were raised in May, but inflation rates are nonetheless weak in the context of historical data. This indicates that further rate cuts are still on the horizon,” De Lima said.
 

RBI  is widely expected to cut  the  policy rate by 0.25 points on Tuesday.