Manufacturing PMI soars to three-month high at 51.7

New Delhi: Manufacturing activities rose in June to a three-month high as new orders were forthcoming from near flat in the first two months of the current financial year, widely-tracked Nikkei Purchasing Managers' Index (PMI) showed on Friday. Even then, additional jobs were not created as producers found existing staffing levels sufficient to handle new and existing orders. Meanwhile, inflationary pressures eased.

PMI rose to 51.7 points in June from 50.7 in the previous month. The index had stood at 50.5 in April. A reading above 50 shows expansion, while the one below that is contraction.

The data came  a day after official figures showed that growth in output of eight crucial infrastructure industries fell to a five-month low of 2.8% in May against four-year high of 8.5% in April.

According to Markit Economics, a compiler of PMI data, manufacturers raised production at a faster rate during June, backed by a stronger increase in new business inflows.

The favourable operating environment encouraged businesses to purchase additional inputs, but was insufficient to generate jobs.

The main contributing factors to the upward movement in the PMI were stronger rates of growth in new orders and output, both of which reached three-month highs in June.

Incoming new work rose across the three broad areas of the manufacturing economy, as did production. The best-performing category was consumer goods.

However, average PMI in the first quarter of 2016-17 at 50.9 points was lower than 51.7 in the first quarter of the previous year. It was also lower than Jan-March quarter of 2016 which had stood at 51.5.

“Indian factories registered a welcome upturn in growth of both production and new orders mid-way through 2016, but producers remain stuck in a low gear. Rates of expansion remain weak by historical standards, with the PMI average for April-June being lower than that seen in the prior quarter," Pollyanna De Lima, an economist with Markit, said.

Offsetting the decline seen in May, the first in 32 months, new export orders increased in June. Official data, however, showed that merchandise exports continued to fall for the 18 months in May though the rate of contraction came down to 0.79%, the lowest in the one and a half years.

PMI data also showed that the rate of expansion in exports was only slight and below the long-run series average. 

Two of the three monitored market groups recorded higher levels of new business from abroad, the exception being intermediate goods.

Markit Economics said boosted by sustained growth of order books, buying levels rose in June. Despite being slight, the rate of expansion was the quickest in the current six-month sequence of increases. Purchasing activity grew in each of the three sub-sectors, led by consumer goods.

Data implied that the upturn in levels placed pressure on the capacity of vendors, as average delivery times lengthened to the greatest extent since April.

June saw input costs increase for the ninth month running, with survey participants reporting higher prices paid for metals, chemicals, plastics, textiles, petrol, food and paper. That said, the rate of inflation eased to the slowest since March, and was moderate overall.

Concurrently, factory gate charges were broadly unchanged in June.

"Purchasing cost inflation softened, while selling prices were broadly unchanged. This lack of inflationary pressures provides the RBI with further leeway to boost economic growth through cutting its benchmark rate,” the economist at Markit said.  

The next monetary policy review would come in August, by which time monetary policy committee, comprising government appointees and RBI appointees with central bank governor as head, is expected to replace the existing mechanism of setting the policy rate. 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.