Manufacturing activity slowed in February as the Purchasing Managers’ Index (PMI) dropped to 56.3 from 57.7 in January. However, the good news is that it did not impact job creation.
“(It is) still firmly within expansionary territory,” Pranjul Bhandari, Chief India Economist at HSBC, said. Further, she added that robust global demand continued to boost growth in the Indian manufacturing sector, which increased its purchasing activity and employment. The index is prepared on the basis of responses from purchasing executives of 400 firms. The index above 50 means expansion, while below 50 indicates contraction. This index also reflects the latest situation ahead of the release of government data.
The survey report said that despite slowing to the weakest since December 2023, rates of expansion in output and sales remained elevated in the context of the survey’s 20-year history. Favourable domestic and international demand prompted firms to increase purchasing activity and hire extra workers at above-trend rates. However, “demand buoyancy kept charge inflation at an elevated level despite softer cost pressures,” it said.
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On job creation, the report said that in response to the upturn in new orders, manufacturers continued to expand their workforce numbers in February, extending the current period of employment growth to a year. The rate of job creation was the second-best in the series’ history, behind only that recorded in January. “One in ten firms signalled greater recruitment activity, while 1 per cent of companies shed jobs,” the report said.
Meanwhile, Indian manufacturers faced another rise in input costs, with frequent reports of higher prices of bamboo, leather, marketing, rubber, and telecom. Encouragingly, the overall rate of inflation eased for the third straight month to its weakest in a year. Concurrently, the rate of charge inflation was little changed from January, remaining above both its long-run average and that seen for input costs. Qualitative data showed that firms passed on higher labour costs to clients, facilitated by favourable demand conditions, the report added.
Firms expressed strong optimism about growth prospects for the coming year, with client demand expected to stay strong and support output. “Business expectations also remained very strong, with nearly one-third of survey participants foreseeing greater output volumes in the year ahead. Although output growth slowed to the weakest level since December 2023, overall momentum in India’s manufacturing sector remained broadly positive in February,” Bhandari said.
According to the report, unfinished business rose further in February, as demand growth continued to outpace increases in production. The rate of backlog accumulation was slight, but nevertheless reached its highest since January 2024.
According to the report, outstanding work rose further in February, as demand growth continued to outpace increases in production. The rate of backlog accumulation was slight but nevertheless reached its highest since January 2024.