Manufacturing PMI grows at fastest pace in 6 months in July

Firms take an axe to hirings, albeit moderately, despite manufacturing uptick

Manufacturing activities rose to a six-month high as orders  from both domestic and overseas markets shot up, showed widely-tracked Nikkei purchasing managers’ index (PMI) on Monday. Even then firms reduced jobs, though moderately. However, experts were not gung-ho about the July PMI, saying the momentum needs to be sustained.

PMI increased to 52.7 points in July, from 51.3 in the previous month. It was the highest since January recorded 52.9 points. A reading above 50 shows expansion, and the one below means contraction.  The data, which came a day before the Reserve Bank of India’s monetary review, also showed that while input inflation rose marginally, output inflation remained stagnant. Both the output and new orders led to the rise in PMI.

Markit Economics, which compiles PMI, said output continued to grow in July, with increases seen across sectors. Moreover, the overall rate of expansion was solid and faster than in June. Underpinning the rise in production levels was a sharper increase in new business inflows. In fact, growth of new orders gathered pace across the three broad areas of the manufacturing economy. Anecdotal evidence highlighted stronger demand from both domestic and foreign clients.

Growth of new export business accelerated in July and was the most pronounced in five months. Panelists reported having been able to secure new contracts in tandem with successful price negotiations with clients.

The data on exports do not seem to be in sync with official figures. Merchandise exports declined for the seventh consecutive month in June.

Despite the uptick in growth, manufacturers continued to cut workforce numbers in July. Nonetheless, the rate of job shedding was only marginal as around 96 per cent of panelists reported no change in employment from the levels recorded in the prior month.

“Although the latest data suggest that the manufacturing upturn gained traction, worries regarding the labour market persist. Continued job shedding highlights the concern felt by businesses towards the outlook, with firms failing to increase workforce numbers to any great extent since early 2014,” said Pollyanna De Lima, economist at Markit and author of the report.

As orders rose, there was evidence of building pressures on the capacity of Indian manufacturers’ operations, as outstanding business was accumulated for the second month running and at the quickest pace since March.

De Lima said while this is a generally positive set of data, upcoming PMI data releases will indicate whether the manufacturing sector can sustain this momentum.

The PMI survey covers 300 companies. The index takes into account, output, orders, employment, stocks of items purchased, and suppliers’ delivery times.