PMI expands for second consecutive month

The Purchasing Managers’ Index (PMI) expanded for the second consecutive month in May, as manufacturers reported higher new orders because of revival in domestic demand. But exports continued to remain a concern.

The index, which gets responses from purchasing managers in 500 industrial companies, increased to 55.1 in May, compared with 53.3 in the preceding month.

“The headline PMI indicates that India’s manufacturing economy is gaining strength, after a five-month period of weakness,” said Gemma Wallace, an economist with Markit, a financial information firm that has developed this index. “Data show that the sector is currently being carried by robust domestic demand, as export sales continued to fall.”

A reading above 50 indicates expansion of that particular variable, while a reading below 50 indicates an overall decrease.

Despite increase in new orders, firms are reporting continued competitive pressure that restrained them from increasing prices. The output prices index is still below the 50-mark with a reading of 49.3 in May this year.

But the employment index crossed the threshold 50-level mark for the first time in 2009 because of new orders, ending a five-month period of retrenchment. “Companies that recruited more staff did so primarily to increase productive capacity as new order numbers grew. Where falling staffing numbers were reported, they were largely due to natural wastage, such as retirements or in response to lower workloads,” Markit said in a press statement.

Purchasing activity and pre-production stocks increased sharply over the month, as firms anticipated higher production requirement in the coming months. However, post-production inventories slowed because of “greater-than-anticipated” sales levels.
 

PMI in 2009
	Jan	Feb	Mar	Apr	May
PMI	46.7	47	49.5	55.3	55.7
Output	44.2	46.1	49.3	55.7	59.6
New orders	46.1	45.9	49.5	54.9	59.1
Export orders	45.1	44.5	43.6	50.7	49.9
Backlog of work	44.3	47.3	49.6	50.9	51.2
Finished goods stock	49.8	45.0	48.6	53.3	52.2
Employment	47.8	49.1	49.4	49.6	50.3
Output prices	44.4	46.1	47.6	49.2	49.3
Inputs prices	41.2	42.5	48.2	52.4	54.5
Delivery times	50.6	51.4	50.8	50.2	50.0
Quantity of purchase	45.4	47.9	49.8	53.3	58.8
Stocks of purchases	48.2	47.3	50.2	55.1	55.5
Source: Markit

New export orders index fell to 49.9 in May, from 50.7 in the immediately preceding month. But Markit said the foreign demand for Indian manufacturers was broadly unchanged during the latest survey period.

With the output level expected to pick up in the future, Markit said inflationary pressures could be seen within the sector. “Demand for raw materials contributed to an increase in input costs over the month, although inflation also reflected speculation on commodities markets,” said Wallace.