PMI for Manufacturing back in expansion mode in July at 55.3

After slipping into contraction for the first time in 11-months during June, the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) moved back above the critical 50.0 thresholds in July. The headline figure was up from 48.1 to 55.3, pointing to the strongest rate of growth in three months.

Operating conditions in India improved during July after growth was halted by the escalation of the pandemic in June. Output, new orders, exports, the quantity of purchases and input stocks all returned to expansion territory, while a marginal increase in employment ended a 15-month sequence of job shedding.

Meanwhile, there was a softer but still sharp increase in input costs. Output charges rose only slightly, however, as several companies absorbed additional cost burdens amid efforts to boost sales

Factory orders rose amid reports of improved demand and the easing of some local COVID-19 restrictions. The upturn was sharp and compared with a marked decline in June. Strengthening international demand contributed to the uptick in total order books. New export orders expanded markedly in July, following a moderate contraction in June.

Rising sales supported a recovery in output, which increased in July after falling for the first time in 11 months during June. The rate of production growth was sharp and outpaced its long-run average.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “It’s encouraging to see the Indian manufacturing industry recover from the blip seen in June. Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions. Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for calendar year 2021.”

“The PMI also brought the positive news of job creation in the manufacturing sector. Although marginal, the rise in employment was the first since the onset of COVID-19. With firms’ cost burdens continuing to rise, however, and signs of spare capacity still evident, it’s too early to say that such trend will be sustained in coming months. Policymakers will welcome evidence that inflationary pressures are starting to abate. Firms signalled the slowest increases in input costs and output charges for seven months. Hence, we expect the RBI to keep interest rates unchanged in its August meeting as it continues to support growth,” Pollyanna De Lima added.

July data indicated spare capacity among manufacturers as outstanding business volumes decreased further. The rate of backlog depletion was only slight, however. Indian firms foresee output growth in the year ahead, with the end of the pandemic and rising sales expected to support the upturn. The overall level of positive sentiment rose from June’s 11-month low, but remained historically subdued as some companies were concerned about the path of the pandemic. The Hindu BusinessLine