Manufacturing activities expanded further in December as the Purchasing Managers’ Index (PMI) moved a tad higher to 56.4 in the last month of calendar 2020. It was 56.3 in November.
However, the bad news is that job shedding continued for nine months. This is significant as the manufacturing sector is considered the biggest job multiplier in the economy. Manufacturing has a share of over 15 per cent in the Gross Domestic Product (GDP).
Manufacturing PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The headline PMI is a weighted average of the following five indices: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent).
Pollyanna De Lima, Economics Associate Director at IHS Markit, said the latest PMI results for the Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms’ efforts to rebuild safety stocks underpinned another sharp rise in production. It’s important to emphasise the broad-based nature of the recovery, with marked expansions in both sales and output noted across each of the three monitored sub-sectors.
“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,” she said.
Further, 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 since, growth lost some momentum and the official results are likely to show a similar pattern. But, “when we combine the latest three months, we see that the performance of the manufacturing industry for the third quarter of fiscal year 2020-21 was notably better than in the second quarter. The three-month PMI average rose from 51.6 to 57.2,” she said.
A report accompanying the survey result highlighted that employment decreased in December, thereby stretching the current sequence of job shedding to nine months. Companies stated that government guidelines to have employees working only on shifts and difficulties in finding suitable staff were the key factors causing the latest fall in payroll numbers. However, the pace of contraction was moderate and the weakest in the current downturn period.
Input cost inflation accelerated to a 26-month high in December, with panellists 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. Indian 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 effect of the Covid-19 pandemic on the global economy.