Macroscope – Purchasing Managers’ Index (PMI) – June 2021

Introduction to Purchasing Managers’ Index (PMI)

PMI, as an index, tracks and reflects changes in manufacturing volumes derived from a five-hundred company survey. Different elements are attributed distinct weights and the resultant index is accepted to be indicative of current business activity and projected confidence levels.

Key elements covered by the index include new orders, output, employment, suppliers’ delivery time, and inventory build-up, in descending weights ranging between (30-10) %.

The index is considered important as an economic indicator helping compare a country’s activity competitiveness vis-à-vis peers.

Update: Manufacturing PMI Reading – April 2021

India Manufacturing PMI contracted for the first time this year at 48.1 vs 50.8 in the prior month. Manufacturing sector maintained trend of succumbing to intensification of viral virus as containment measures restrained demand. The road to recovery can be compared to medicine being a bitter pill to swallow.

A reading above 50 denotes expansion and below 50 denotes contraction. 

Analyst Commentary

Latest reading shows renewed deterioration an already deteriorating sector on the health front. PMI averaged 51.5 in Q1FY22, the lowest three-month figure since the same period one year ago.

New orders, the largest sub-component, increased at the slowest since the current stretch of expansion started in August 2020. In spill-over effect, companies  observed an end to growth in new work and output over last ten months, per latest data. Following suit were fastest falling input buying since Mar’05 and fifteen-month consecutive job shedding as pandemic restrictions rained rust on the developing  ladder-al economy.

Global vaccination drives tried pushing production metrics to greener territory but still saw new export orders decreased for the first time in ten months. The reduced workloads welcomed a forced positive as sector saw backlog decrease for second consecutive month.

The wounding demand conservatively aided the already taped and re-taped pipes of the supply side. Lengthier delivery times and vendor performance worsened for fourth straight month. This was mainly accredited to global shortage of raw materials, which further intensified rising cost worries. Like over the last ten months, firms resorted to passing prices to consumers to alleviate deforested margins.

In a year where corporate profits are scaling new highs, there are many who are questioning its longevity. This is reflected by business confidence dipping to twelve-month low as the makers become increasingly concerned about operational efficiencies as uncertainty becomes the market mood.

Going ahead, the widening of vaccination programs will be instrumental in printing manufacturing sector’s next leg of growth. The numbers today highlight the nascent and fragile stage of recovery that the Indian economy is in. We continue to keep an eye on efficient implementation of public policies which can be expected to bolster the economy at large.

Click Here to read HIS Markit’s original press release on ‘IHS Markit India Manufacturing PMI’ for the month June, 2021