PMI expands for third consecutive month, but lower than May level

The Markit Purchasing Manager’s Index (PMI) expanded for the third consecutive month in June as companies reported higher domestic demand. Exports also improved in the month due to successful marketing campaigns and improved product quality, said the monthly report.

The index, which gets responses from purchasing managers from 500 industrial companies, stood at 55.3 in June which is slightly below the eight-month high figure of 55.7 in the previous month of May.

“The strengthening of the domestic market signalled by the latest data is especially pleasing and should hopefully be reinforced if the recovery in employment gains traction. Signs that the manufacturers pricing power may be returning will also provide some welcome respite for profit margins,” said Rob Dobson, senior economist at Markit.

A reading above 50 in the seasonally adjusted index indicates expansion of the particular variable while a figure below 50 is an overall decrease.

Manufacturing production and new orders continued to rise for the third successive month reflecting stronger conditions in both domestic and export markets. However, they grew at slower rates as compared to the preceding month.

The new export order index improved considerably at 52.1 as compared to 49.9 in May. This is the highest reading since September 2008 and indicates a firm improvement in foreign demand.

Average factory gate prices increased for the first time in eight months in June. Companies reported June data signalled a further marginal increase in manufacturing employment as labour market conditions continued to stabilise.

Companies attributed the increase in staffing levels to growth in sales and production. The index saw a marginal improvement to 50.6 from 50.3 in the previous month. However, around 98 per cent of the panel members reported no change in their staffing levels.

Purchasing activity saw a marginal decrease over the month indicating a slower rate of increase in purchase of input volumes. However, the index continued to expand for the third consecutive month as a result of higher production requirements led by strong sales growth.

Average vendor performance registered a decline for the first time in 2009 which indicated an increase in demand for raw materials which led to greater pressure on supplier capacity. Companies reported shortage of some raw materials like aluminium, copper, plastics and rice.

The stocks of purchases index increased for the fourth successive month to indicate further increase in holdings of finished goods inventory.