Manufacturing PMI improves modestly to 50.7 in May

01 Jun 2016 Evaluate

After an upbeat GDP and fiscal deficit data, there is another good macro data, with manufacturing sector output showing some improvement in the month of May, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers Index edged higher, coming at 50.7 in May compared with 50.5 in April. Though, the manufacturing output in India grew at its slowest pace in five months in May, suggesting that the sector is still in the doldrums.

The reading highlighted an overall improvement in operating conditions, the fifth in as many months. Business conditions across India’s manufacturing industry improved for the fifth straight month in May. Whereas new orders expanded at a faster pace, the upturn in output softened.

In a positive development businesses took on additional workers and bought more inputs for use in the production process. The rate of job creation was, however, only marginal. Manufacturers purchased more inputs during May, taking the current sequence of expansion in buying levels to five months. Concurrently, pre-production inventories rose again, albeit marginally. Goods producers raised their output volumes for the fifth successive month in May, but to the least extent in this sequence.

Although new orders rose further, the rate of expansion was well below the long-run survey average. Data implied that growth was centred on the domestic market, as new business from abroad decreased for first time since September 2013. Sub-sector data highlighted intermediate goods as the best performing category in May, where growth rates for new orders and output were stronger than those seen among consumer goods producers. Investment goods firms, in contrast, saw further declines in new work and production.

Price indicators varied. While cost inflation climbed to the strongest since March 2015, charges were raised at a weaker pace. The rate of inflation was in fact the most pronounced since March 2015. Although firms passed on to their clients part of the additional increase in costs by way of raising selling prices, the rate of charge inflation eased to the weakest in the current three-month sequence of increases.

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