Manufacturing PMI slips to 50.8 in May, marking steepest fall in 10 months

Job loss accelerated as Covid-19 'crisis intensifies' in sector, says private survey

The growth of India’s domestic factory orders and production slowed to a 10-month low in May as most states restricted businesses to contain the spread of Covid-19. The overall manufacturing activity witnessed a significant loss of growth momentum owing to the escalation in Covid cases and its detrimental impact on demand, according to a private survey.

The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipped to 50.8 in May from 55.5 in April. That was just above the 50 mark separating growth from contraction. In May 2020, manufacturing activity had contracted, with the PMI falling to 30.8.

The decline in employment was slight but had accelerated since April, said the report, which is based on a survey of 400 manufacturers.

The data has come ahead of the Index of Industrial Production (IIP) numbers for April, which will show the real impact of the second Covid wave on manufacturing and services sectors.

"India’s manufacturing sector is showing increasing signs of strain as the Covid-19 crisis intensifies. Key gauges of current sales, production, and input buying weakened noticeably in May and pointed to the slowest rates of increase in 10 months. In fact, all indices were down from April,” Pollyanna De Lima, economics associate director at IHS Markit, said in the report.

De Lima, however, said the detrimental impact of the pandemic and associated restrictions seen in the manufacturing sector was considerably less severe than during the first lockdown, when unprecedented contraction had been recorded.

Firms scaled up production volumes during May, but the pace of expansion was modest in the context of historical data. In fact, the rise was the weakest in 10 months. Anecdotal evidence indicated that the upturn was curbed by the escalation of the pandemic and difficulties in securing raw materials. Although new export orders also increased at a softer rate, the upturn was solid and outpaced the long-run series trend.

"Growth projections were revised lower as firms became more worried about the escalation of the pandemic and local restrictions. The overall degree of optimism towards the year-ahead outlook for output was at a 10-month low, a factor which could hamper business investment and cause further job losses,” said De Lima.

The latest figure pointed to a marginal improvement in business conditions, which was the weakest in the 10-month sequence of expansion. Besides, new orders increased at a marginal pace, which was the slowest since August 2020.

“The dip in the PMI we have seen is in line with the widening localised restrictions over the months of April and May and is also in line with soaring sequential momentum, which we have seen in many other high-frequency indicators,” said Aditi Nayar, chief economist, ICRA.

Talking about job losses, De Lima said, “Amid a lack of new work, goods producers reduced headcounts again, with the rate of job shedding quickening in May.”