Manufacturing PMI rises to 54.9 in February

Output and new orders surge, but job losses persist amid worries about profit margins, notes IHS Markit survey

March 02, 2022 12:01 pm | Updated 12:05 pm IST - New Delhi

A view of Hyundai Car Manufacturing Plant at Irungattukottai in Near Chennai. File

A view of Hyundai Car Manufacturing Plant at Irungattukottai in Near Chennai. File | Photo Credit: Velankanni Raj B

India’s manufacturing sector saw an expansion in output and new orders in February as per the IHS Markit Purchasing Managers’ Index (PMI) which rose to 54.9 for the month, from 54 in January. A reading of 50 on the PMI indicates no change in activity levels.

February marks the eighth month in a row that the manufacturing sector has expanded, with the PMI staying above the long-run average of 53.6. Favourable demand conditions led to an uptick in business optimism to the highest level since last October, although it is still below the long-term average.

However, despite the pick-up in demand and input price inflation dropping to a six-month low, employment in the sector decreased, although the job shedding was the lowest in three months.

The PMI, which is based on a survey of purchasing managers from 400 manufacturing units, is based on interviews conducted between February 10 and 22, and thus does not incorporate the implications of the invasion of Ukraine by Russia last week.

The uptick in orders helped shed finished goods’ stocks, but producers remained fretful about threats to growth and profit margins, pointed out Shreeya Patel, economist at IHS Markit.

“Most prominently, cost pressures remained elevated as a result of shortages while delivery times lengthened once again. However, a key threat to manufacturers comes from only marginal increases in selling prices. Despite expenses rising sharply, firms passed on only part of this burden to clients, suggesting pressure on profit margins,” she said.

A sustained increase in order backlogs could lead to higher employment levels in the months ahead should capacity pressures continue, even as the manufacturing sector seemed to have weathered the Omicron wave, Ms. Patel said.

Despite purchase price inflation softening to a six-month low, IHS Markit said cost pressures remained sharp. Part of this additional cost burden was passed on in the form of higher selling charges, though the rate of increase was modest, it said.

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