Purchasing Managers’ Index

India’s factory output expanded at its slowest pace in nine months in June as elevated price pressures continued to dampen demand and output.

The survey-based Global India Manufacturing Purchasing Managers’ Index (PMI) slipped to 53.9 in June, from 54.6 in May.

Key highlights –

• Export orders rise —
  • • New export orders rose for the third successive month in June and employment rose for the fourth successive month, albeit at a slight pace.
    • While stronger client demand sustained order books, growth was curbed by acute inflationary pressures.
    • Factory orders and production rose for the 12th straight month, but in both cases the rates of expansion eased to nine-month lows.
• Output unlikely to rise —
  • • Although the outlook for the Indian manufacturing industry remained positive midway through 2022, sentiment slipped to a 27-month low.
    • The rate of input cost inflation faced by producers remained historically high, but was the slowest in three months.
• Manufacturing sector displayed resilience —
  • • The manufacturing sector displayed encouraging resilience on the face of acute price pressures, rising interest rates, rupee depreciation and a challenging geopolitical landscape.
    • However, there was a broad-based slowdown in growth across a number of measures such as factory orders, production, exports, input buying and employment. This is due to restricted spending amid elevated inflation.

What is PMI?

• It is an economic indicator that is calculated from monthly surveys of purchasing managers and supply executives from specific companies.
• PMI Manufacturing gives an indication of the economic health of the manufacturing sector. The most followed PMI readings come from Markit and Institute of Supply Management.

Who releases the index?

• Manufacturing Purchasing Managers’ Index (PMI) data for India is released by S&P Global – a global major in financial information and analytics.
• Earlier PMI data is India was released by IHS Markit before its merger with S&P.

How is it calculated?

• To arrive at PMI, a questionnaire seeking factual information on variables such as new orders, output, employment, supplier deliveries, inventories, new export orders and prices are sent to purchasing managers of business enterprises and they are asked if these factors are above or below the level of the previous month.
• It is calculated separately for the manufacturing and services sectors and then a composite index too is constructed.

How does one read the PMI?

• A figure above 50 denotes an expansion while anything below 50 denotes a contraction in activity. The higher the difference from this mid-point of 50, greater the expansion or contraction.
• Also, the rate of expansion can be judged by comparing the PMI with that of the previous month reading.
• If the latest figure is higher than previous month’s, then manufacturing or services is expanding at a faster rate. If it is lower than previous month, then it is growing at lower rate.