Manufacturing growth falls to four-month low in February 2018: PMI

According to Nikkei India Manufacturing Purchasing Managers Index (PMI), India’s manufacturing sector activity fell to four-month low in February 2018 as factory output and new business orders rose at slower pace. The monthly PMI fell to 52.1 in February 2018 from 52.4 in January 2018, indicating modest improvement in operating conditions. A reading above 50 on index denotes expansion and less than that indicates contraction in activities

Key Facts

This is for seventh consecutive month that PMI remained above 50-point-mark that separates expansion from contraction. The expansion was primarily driven by significant rise in manufacturing production, while there were reports of improved underlying demand, with domestic and external sources driving new business gains.
In December 2017, PMI had touched a 60-month high of 54.7. In response to greater production requirements, firms raised their staffing levels during February 2018. Although modest, the pace of job creation was slightly faster than January.
PMI Survey on prices front found that cost inflation has accelerated to sharpest since February 2017, adding to expectations that inflationary risks will continue over coming months. It also noted that Indian manufacturers remained optimistic towards 12-month outlook for output during February 2018.

Purchasing Managers’ Index (PMI)

PMI is an indicator of business activity-both in the manufacturing and services sectors. It is a survey-based measure that asks respondents about changes in their perception of some key business variables from month before. It is calculated separately for manufacturing and services sectors and then composite index is constructed.

Implications for economy

PMI is usually released at start of month, much before most of official data on industrial output, manufacturing and GDP growth is made available. It is, therefore, considered a good leading indicator of economic activity. Manufacturing growth measured by PMI is considered good indicator of industrial output.

Month: Current Affairs - March, 2018