Dec manufacturing PMI at 26-month high of 57.8 as production picks up

India’s purchasing managers’ index (PMI) for manufacturing rose to a 26-month high of 57.8 in December, marking the highest increase in new factory orders and production in more than two years. The average headline figure for the third quarter of FY23 (56.3) is the highest recorded since one year ago.

The survey released by S&P Global on Monday reflected factories improving employment and purchases. A survey print above 50 indicates expansion in manufacturing and below that represents contraction. PMI was 55.7 in November.

The survey noted that the December data highlighted a further increase in buying levels among goods producers as the rate of expansion was historically sharp and the strongest since May 2022.

“Hiring activity was stretched to December, while more inputs were acquired as firms sought to supplement production and add to their inventories. Input cost inflation was contained, but there was a solid and quicker increase in selling prices”, the survey said.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said Indian manufacturing wrapped 2022 with the best expansion in production.

“Demand strength took centre stage among the reasons provided by firms for improvements in many measures. Additional materials were purchased and extra workers hired as companies sought to supplement production and maintain healthy levels of inventories.

Input stocks rose at a near-record pace,” she said.

The survey noted that goods producers hired additional staff at the end of the year to address backlogged work. The latest increase in employment was the tenth in consecutive months, but the slowest since September.

The inventory trends continued to diverge in December, with a rise in input stocks contrasting with another depletion in holdings of finished products.

“Less challenging supply-chain conditions also supported the upturn. Delivery times were reportedly stable, which enabled firms to secure critical materials and boost their input stocks”, De Lima said.

The survey said that cost pressures remained muted in December and the overall rate of inflation was little-changed from November, which is the second-slowest since September 2020. The price reductions for some raw materials partly offset the increases elsewhere.

“On the other hand, there was a solid and quicker upturn in factory gate charges during December. Moreover, for the first time in close to two-and-a-half years, the rate of inflation for selling prices outpaced that seen for input costs”, it said.

The manufacturing PMI data comes in the wake of the first advance estimates of GDP, scheduled to be released at the end of this week. Earlier in December, the International Monetary Fund (IMF) had cautioned that a sharp global growth slowdown in the near term would affect India through trade and financial channels as it projected India’s growth to ease to 6.1 per cent in FY24 from an estimated 6.8 per cent in FY23 due to less favourable global outlook and tighter financial conditions.

However, Fitch Ratings, while reaffirming India’s sovereign rating at the lowest investment grade with a stable outlook, said India was somewhat insulated and hence could be reckoned out of the likely gloomy global scenario in 2023, given its modest reliance on external demand.

De Lima while expressing future outlook for Indian manufacturing said that manufacturers are strongly confident of their ability to lift production.

“While some may question the resilience of the Indian manufacturing industry in 2023 amid a deteriorating outlook for the global economy, manufacturers were strongly confident in their ability to lift production from present levels”, said De Lima.