Fall in Manufacturing PMI

• 02 Dec 2020

The Purchasing Managers’ Index (PMI) for India’s manufacturing shows that the sector’s expansion as well as the pace of new orders slowed down while employment declined further as business optimism faded during the month of November.

• PMI is an indicator of business activity in the manufacturing and services sectors.

Key Points

• Data Analysis:
  
  • India’s Purchasing Managers’ Index (PMI) fell to a three-month low of 56.3 in November from an over 12-year high of 58.9 in October.
    
    • In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
    • Although India’s PMI is in the expansion zone, the ongoing rise in Covid cases in some states and uncertainty about regional lockdowns is denting confidence.
  • There were slower increases in factory orders, exports, buying levels and output.
  • Indian manufacturers are refraining from hiring. Employment fell in November as companies observed social distancing guidelines.
• Calculation of PMI:
  
  • It is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • The PMI is a number from 0 to 100.
    
    • PMI above 50 represents an expansion when compared to the previous month;
    • PMI under 50 represents a contraction, and
    • A reading at 50 indicates no change.
  • If PMI of the previous month is higher than the PMI of the current month (as is the case mentioned above), it represents that the economy is contracting.
  • It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
  • PMI is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
  • As the official data on industrial output, manufacturing and GDP growth comes much later, PMI helps to make informed decisions at an earlier stage.
  • It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.

Source:TH