Context:
The Manufacturing PMI in India has fallen to a 56.3 in February from a earlier figure of 57.7 in January.
Such a figure is currently below 14 month but still well above contractionary territory. The Purchasing Managers’ Index (PMI) is the barometer for an economy’s manufacturing activity a reading above 50 implies expansion, the below value indicates contraction.
Main Features
- Slower Growth
- The February PMI is the most feeble since December 2023 but still indicates overall a positive business outlook.
- Sector Performance Figures
- Consumer, intermediate, and investment goods were reported.
- Employment
- Manufacturing firms expanded their workforce with job creation at its second highest level in survey history.
Demand and inflation trends
- New Orders & Exports
- Strong domestic and global demand kept new business intakes rising for the 44th consecutive month.
- Pricing Pressure
- Easing input costs notwithstanding, firms increased prices owing to increased labour and material costs (e.g., bamboo, leather, rubber, telecom).
Chief India Economist, HSBC
- According to an expert insight from Pranjul Bhandari, Chief India Economist, HSBC, At its current pace of slowdown, India’s manufacturing is still rather strong, carrying optimistic business outlooks.
- Global demand is also sustaining such growth, encouraging businesses to increase purchasing activity and hire new employees.
Purchasing Managers’ Index (PMI)
The Purchasing Managers’ Index (PMI) is a leading economic indicator that controls business activity over the manufacturing and services spectrums. Monthly based surveys of companies on economic trends and market conditions provide a base for it.
Types of PMI
- Manufacturing PMI – It measures the performance of the manufacturing sector.
- Services PMI – It assesses the activities present in the services sector.
- Composite PMI – It is an index that aggregates manufacturing and services activities.
How is the Manufacturing PMI Derived?
PMI is calculated from the survey responses provided by manufacturing companies based on five key variables:
- New Orders (30%)
- Output (25%)
- Employment (20%)
- Suppliers’ Delivery Times (15%)
- Stock of Items Purchased (10%)
PMI values are interpreted as follows:
- Above 50 is the expansion of business activity.
- Below 50 is the contraction of business activity.
- Closer to 50 is little change in business conditions.
- Growth or decline rates are determined by comparison of month over month PMI values.
Global PMI Measurement
The Purchasing Managers’ Index (PMI) was first published in 1948 by the Institute for Supply Management (ISM), USA. The Singapore Institute of Purchasing and Materials Management (SIPMM) compiles PMI for Singapore. IHS Markit is known to be producing PMI for 30 countries, with India being one of them. The Manufacturing PMI in India dates back to survey responses from 500 manufacturing companies.
Why is PMI Important?
- Early Economic Indicator
- The PMI itself is released even before other major economic indicators such as GDP or industrial output., making it exceedingly handy for forecasting economic trends.
- Helps Businesses Plan
- Manufacturers and suppliers use PMI data to adjust production levels and anticipate demand.
- Investor confidence
- The stock market investors use PMI to assess the economic health to make investment decisions confidently.
Even though some momentum waned within India’s manufacturing sector, it is still in expansion mode, with booming job creation and resilient demand. Looking ahead, however, some inflationary pressures and uncertainties in the global context would dent this momentum in future growth.
Source: BS
