Manufacturing PMI in March rises to 16-yr high, employment improves

Sharpest uptick in output, new orders since Oct 2020, says survey

India’s manufacturing sector ended 2023-24 on a “stellar” note, with the headline Purchasing Managers Index (PMI) soaring to a 16-year high of 59.1 in March, up from 56.9 in February, according to a survey released by HSBC on Tuesday.

A PMI above 50 represents expansion in the manufacturing sector, while a reading under 50 represents contraction. The survey reveals that the manufacturing sector gained momentum in March, with the strongest increases in output and new orders since October 2020. This was accompanied by the second-sharpest upturn in input inventories in the survey’s history in connection with India.

In a positive sign for the jobs market, employment picked up. “Employment returned to positive territory and firms scaled up buying levels. There was a mild pick-up in cost pressures during March, but customer retention remained a priority for goods producers who raised their charges to the lowest extent in over a year,” the survey stated.

At 59.1, the March manufacturing PMI is slightly lower than the flash estimate for the month at 59.2, released on March 21. The March figure marks the manufacturing output rising for 33 months in a row and to the sharpest since October 2020.

The growth of new orders, the survey noted, accelerated at the fastest pace in nearly three-and-a-half years in March, amid reports of buoyant demand conditions. New work inflows strengthened from both domestic and export markets, with new export orders increasing at the fastest pace since May 2022. Sales to Africa, Asia, Europe, and the US picked up sharply.

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“India’s March manufacturing PMI rose to its highest level since 2008 as manufacturing companies expanded hiring in response to strong production and new orders. On the back of strong demand and a slight tightening in capacity, input cost inflation picked up in March,” said Ines Lam, economist, HSBC.

The survey also noted that growth quickened across the consumer, intermediate, and investment goods sectors. The steepest expansion in production was seen at investment goods makers.

After leaving payroll numbers broadly unchanged in the previous two months, the survey noted, manufacturers in India hired additional workers in March. The pace of job creation was mild but still marked the best performance since September 2023. Anecdotes highlighted the recruitment of mid-level and full-time employees.

Contrary to the positive news, the survey noted that overall sentiment slipped to a four-month low as concerns about inflation continued to weigh on confidence. “Despite remaining modest by historical standards, cost pressures were at their highest in five months. Companies reported having paid more for cotton, iron, machinery tools, plastics, and steel,” the survey added.