Manufacturing shows marginal improvement in Dec, PMI inches up to 56.4

Manufacturing sector activity showed a marginal improvement in December compared to the previous month even as employment generation remained low, showed a widely-tracked IHS Markit purchasing managers’ index (PMI) survey. PMI inched up to 56.4 in December compared to 56.3 in November.

However, it remained lower than 58.9 in October and 56.8 in September, the two months when the economy saw lifting of lockdowns. A reading above 50 shows growth, while the print below 50 means contraction.

While firms were able to lift input stocks, and did so at the quickest rate in nearly a decade, holdings of finished goods decreased sharply due to ongoing increase in new work. Output growth eased to four-month low, but remained strong.

Manufacturing in the index of industrial production (IIP) rose by 3.5 per cent in October, according to latest figures. However, it may also come down in line with the PMI results, warned Pollyanna De Lima, economics associate director at IHS Markit.

Lima said, “The latest available official data pointed to a 3.5 per cent annual increase in manufacturing production during October, when the PMI Output Index had strengthened considerably. In the two months, growth lost some momentum and we are likely to see the official results showing a similar pattern.”

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Rahul Bajoria, chief India economist at Barclays, said the sticky and elevated PMI readings continue to be in sync with high frequency real activity data, which has shown ongoing improvement in performance through the last six months.

“The positive growth momentum could get a further boost after a nationwide, phased distribution of the approved vaccines. That is expected to begin in the next one-two weeks,” he said. One area that failed to improve was employment.

“Once again, the survey brought the bad news of falling employment. However, the trend for jobs is at least moving in the right direction as the rate of contraction softened to the weakest in the current nine-month period of reduction,” said Lima. Meanwhile, raw material scarcity at suppliers’ end caused delivery delays and the fastest rise in input costs in over two years.

Reflecting the loosening of Covid-19 restrictions, strengthening demand and improved market conditions, factory orders increased during December. In response, firms lifted production again. In both the cases, rates of expansion remained sharp despite easing to four-month lows. International demand for Indian goods rose in December, but anecdotal evidence suggested that growth was hampered by the Covid-19 pandemic. As a result, new export orders increased at the slowest pace in the current four-month sequence of expansion.

Input cost inflation accelerated to a 26-month high in December, with panelists noting increased prices for chemicals, metals, plastics and textiles. Output charges were lifted in response to rising cost burdens, but here the rate of inflation was only marginal. Manufacturers maintained an upbeat view that output will increase in the coming year.

However, the degree of optimism weakened to a four-month low as some firms were concerned about the lasting effects of the Covid-19 pandemic on the global economy.