India’s manufacturing PMI remains steady at 54.8 in May 2012

India’s manufacturing sector continued its expansionary trend albeit at a slightly slower pace in the month of May. The HSBC India Manufacturing Purchasing Managers' Index (PMI) which is a measure of factory production, slipped slightly to 54.8 in May, from 54.9 in April. The 50 mark differentiates growth from contraction.

As per the current reading, output in the manufacturing space continued to grow. New orders increased sharply in May fuelled by strong demand. New export orders also increased for the seventh month in a row. However, power shortages as well as insufficient employee numbers kept the pace of output slow and increased backlogs of work.  As a result, manufacturers increased employment levels in May, although the rate of job creation was again modest.

‘Activity in the manufacturing sector kept up the pace in May with output, quantity of purchases and employment expanding at a faster pace. New orders decelerated slightly, led by domestic orders,’ said Leif Eskesen, economist at HSBC.

Strong demand for inputs, along with reports of limited supply, led to rise in input costs during the month. Indian manufacturers passed on higher input costs to their clients in May. Output prices also rose for the 33rd month in a row - one of the fastest rates in the history of the series.

Hence, there was a word of caution for the RBI. As inflation still remained at historical high and it would be tough for the RBI to bring about a balance between a lukewarm economy and high prices. Nonetheless the manufacturing space has continued to do well inspite of economic and political friction taking hold in Europe, one of India's main trading partners.