Mfg. sector is strong in May despite rising inflation: Survey

Mfg. sector is strong in May despite rising inflation: Survey

In News:

• The manufacturing sector in India grew during the May month, and continued to grow strongly despite the historically high rate of inflation as per a survey.

What's in Today's Article:

• Purchasing Managers Index (about the release of PMI for India methodology analysis of the index, importance for the Index)
• News Summary

In Focus: Purchasing Managers' Index (PMI)

• Purchasing Managers Index (PMI) is an indicator of economic performance, and is calculated from periodic surveys of various companies.
• It tracks activity on the buying or the input stage.
  • In this way, it is very different from industrial production that is a reflection of the actual production.
  • E.g. For instance, the Index of Industrial Production (IIP) is a measure of output.
• There are two kinds of PMI - Manufacturing PMI and Services PMI .
  • The index tracks trends both in the manufacturing and services sectors.
• PMI does not include the informal sector activities.

The institution that is responsible for the release of PMI data for India

• PMI information for India is published through S&P Global - a global leading provider of data and analytics for financial institutions.
  • The earlier PMI data for India was published from IHS Markit before its merger with S&P.
• The Index is a measure of how India's manufacturing industry and is calculated based on an analysis of around. 500 manufacturing firms.

Methodology

• The PMI is result of a set of questions that are qualitative. For manufacturing PMI the questionnaire will be delivered to manufacturing firms.
• The questions are based on five main variables.
  • The variables and their weights included in this index include:
    • new orders (30 percent),
    • output (25 output (25.4%),
    • Employment (20 percent),
    • The delivery time of the suppliers (15 15 percent) and
    • inventory of the items you purchase (10 percent) of the items purchased (10%)).
  • The surveys are carried out on a monthly basis.

Reading of the PMI

• A PMI number more than 50 indicates growth in business activities.
  • A number lower then 50 is a sign of an increase.
• The rate of growth is also assessed by comparison of the PMI to the previous month's data.
  • If the figure is greater than that of the previous month, the economy is growing at a an increased rate.
  • If it is less than the previous month , then you are growing at a slower rate.

Significance of PMI

• The index is released ahead of when the majority of public information on manufacturing output, industrial output and GDP growth is available.
  • Thus, it is regarded as to be a an excellent measure of the economy's activity.
• Central banks from many nations also use the index to make decisions about interest rates.
• It also gives an idea of earnings of companies and is watched closely by investors and the bond market.
• A high index reading increases the appeal of an economy against a rival economy.

News Summary

• The manufacturing sector was strong in May, largely because of orders that were placed and the increase of global orders.
  • However, the sector was hit with the brunt of the inflationary pressures.

Key Highlights:

• S&P Global India Manufacturing Purchasing Managers' Index (PMI) for May 2022
  • The S&P Global seasonal adjusted India Manufacturing PMI, or Purchasing Managers' Indicator (PMI) was 6, in May it was unchanged in comparison to 54.7 on April.
  • The May PMI report indicated an I improvement in the overall operational conditions for the eleventh consecutive month.
• An increase in growth is noticeable in new export orders
  • The output of factories was boosted by the surge in international orders which was the highest level in over 11 years since April 11, 2011.
• On the front of employment
  • In response to the increased demand manufacturing companies in India continued to work to replenish stocks and employed additional workers in line with demand.
  • According to the survey in the month of March the rate of job increase accelerated to the highest level since January 2020.
• In the area of price
  • The cost of inputs increased for the 22nd month in a row in May.
  • Companies are reporting higher costs for electronic components and energy, as well as freight food items, metals, and textiles.
  • While it was less sluggish than April however, inflation was generally high.
• Business optimism is measured by the survey
  • The survey's measure of business optimism reveals that there is a feeling of anxiety for manufacturers..
  • The overall sentiment was the lowest it has been in two years.
    • The respondents worried that potential for growth could be damaged by the sharp price pressures.
  • India saw a slow increase in GDP of 4.1 percent in the March-January quarter.
  • The economists predict that this growth will be slower in the next year due to spillovers due to the Russia Ukraine war.
    • The war is likely to strain the supply chain, and will contribute to an increase in prices.

 

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