Manufacturing PMI jumps to 53.1 on strong order inflows

The country’s factory production accelerated in October as companies scaled up production and employment levels amid strong rise in business order flows, according a survey released on Thursday.

Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 53.1 in October from 52.2 in September. This is the 15th month of continuous expansion. The survey is conducted among purchasing executives across over 400 companies.

These companies are divided into 8 broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. Index over 50 shows expansion, while below 50 means contraction. The index is prepared by IHS Markit and released along with a detailed report. This index is widely quoted to explain the latest industrial situation.

The report mentioned that the ongoing improvements in demand, coupled with technological advancements and favourable market conditions, prompted a stronger upswing in production. The rate of output growth was the second-highest registered in the year-to-date, with accelerations evident in consumer, intermediate and investment goods sectors.

New orders increased solidly during October, which panelists attributed to successful advertising efforts, strengthening underlying demand and competitive price setting. The rise was the fastest since June. While the growth of total new orders gathered pace, the upturn in export sales cooled at the start of the fourth quarter.

Pollyanna De Lima, Principal Economist at IHS Markit, said that the manufacturing sector continued to make up for the lost ground in August, with a robust and accelerated rise in new orders boosting production growth in October.

Consumer, intermediate and investment goods output increased at stronger rates. A combination of domestic and foreign orders fuelled the upturn in overall activity, although export orders displayed the slowest expansion since July whilst total new work orders rose at the sharpest pace since mid-year.

“The trend for employment was particularly encouraging, with job creation at a ten-month high. Firms sought to increase their competitive edge, with marketing activity and investment in research and development, which meant business sentiment remained positive. However, goods producers see challenges and uncertainties ahead, which in turn translated into the weakest degree of optimism seen in 20 months,” she said.

The report further added that October data showed a fifth successive monthly rise in quantity of purchases. The expansion was broadly similar to the moderate pace noted in September. Anecdotal evidence suggested that the ongoing growth of new work underpinned the increase in buying levels.

At the same time, vendor performance was broadly unchanged amid reports of higher prices for chemicals, energy and metals, average cost burdens increased further. The rate of inflation was marked and broadly in line with its long-run average. It also said that some manufacturers passed on part of the additional cost burden to their clients by hiking their charges.

That said, the rate of selling price inflation was mild in the context of historical survey data. Trends for stocks differed, with a fall in the holdings of finished goods contrasting with accumulation of input inventories. The former was associated with the immediate dispatch of products to clients, while the latter was linked to the purchasing of additional materials amid higher demand.