Hope for economy as PMI shows manufacturing activity in Sept at 8-year high

Upturn in total sales was supported by a renewed expansion in new export orders, says index

The purchasing managers’ index (PMI) has given hope for economic revival, at least in the manufacturing sector. However, the job scenario remained bleak due to social-distancing norms.
 
The PMI rose to an over eight and a half-year-high of 56.8 in September from 52 in August due to increased orders and production.
 
A reading above 50 means growth while one below denotes contraction.
 
It was in August that the manufacturing sector posted growth after four months of contraction since April due to Covid-induced lockdown. The index for manufacturing rose to 51.6 during the second quarter of 2020-21 against just 35.1 in the first quarter. Whether it will translate into higher GDP numbers for the second quarter is difficult to say since the methodologies used by the PMI and official statistics differ and manufacturing is not the biggest part of the economy. GDP contracted by an unprecedented 24 per cent in the first quarter. Within that manufacturing contracted about 40 per cent. Its share in gross value added stood at just around 14 per cent.
 
However, Pollyanna De Lima, economics associate director at IHS Markit, said: “While uncertainty about the Covid-19 pandemic remains, producers can, at least for now, enjoy the recovery.”
 
A commentary associated with the PMI survey said amid reports of restrictions loosening during lockdown and higher demand, Indian manufacturers lifted output for the second straight month in September. The increase was sharp and the third-quickest in the history of the survey.
 
Similarly, there were back-to-back increases in new business inflows. The rate of expansion picked up to the fastest since early 2012.

 
The upturn in sales was supported by renewed expansion in new export orders, the first since prior to the escalation of the Covid-19 outbreak.
 
De Lima said: “The Indian manufacturing industry continued to move in the right direction, with the PMI data for September highlighting many positives. Due to loosened Covid-19 restrictions, factories went full blast, supported by a surge in new work.” Despite strong growth in order volumes, goods producers signalled another reduction in payroll numbers. In many cases, this was attributed to efforts to observe social-distancing guidelines. Employment has now decreased for the six consecutive months. De Lima said: “One area that lagged behind, however, was employment
 
 Some companies reported difficulties in hiring workers, while others suggested that staff numbers had been kept to a minimum because of social-distancing guidelines.”
 
As a result of the lower headcount and rising sales, companies noted a further increase in their backlog of work. The rate of accumulation was marked, despite the softening from the recent high in August.
 
 
Manufacturers stepped up purchasing in line with greater production needs. Furthermore, the increase in input buying was the strongest in over eight and a half years. This placed additional pressure on supply chains as evident from a further increase in delivery time.