July manufacturing PMI falls to 46; overall activity shrinks for 4th month

Job losses continue as domestic demand struggles as lockdowns return in states and export orders vanish

India’s manufacturing activity hit a speed bump in July after being on the slow road to improvement in the previous two months as regional lockdowns severely held back demand, leading to contraction in output.

According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on Monday, manufacturing PMI stood at 46 in July, down from 47.2 in June.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. PMI had fallen to a historic low of 27.4 in April, but had been steadily climbing since.

“The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months,” said Eliot Kerr, economist at IHS Markit.

“Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won’t see a pick-up in activity until infection rates are quelled and restrictions can be further removed.”

Kerr warned that any more spikes in cases may bring further lockdowns which would derail a recovery in the sector.

A nationwide lockdown in April, coupled with a crash in export orders, had led to conditions across sectors falling by the biggest margin ever and new businesses collapsing at a record pace. Since then, jobs have been hit the most and employment numbers saw a further slide in July.

 

 

The PMI survey showed manufacturers cut jobs yet again in July, while new orders fell for the fourth straight month. Industry bodies said with a dearth of labour and raw material, supply chains could not be established.

Similar to the trend for output, the pace of decline in new orders accelerated from June, but remained slower than at the height of the current crisis. When explaining falling sales, companies often cited prolonged closures at their clients’ businesses, the survey said.

The situation was made worse by plunging demand from international markets, which further deteriorated sales trends. India’s biggest overseas markets for merchandise shipments such as the US, Gulf nations, and the European Union have been hit hard by the ongoing pandemic.

Survey participants said international clients were hesitant to place orders while the duration of the pandemic remained uncertain. That said, the latest reduction in exports was the softest in four months.

The PMI survey, however, showed that manufacturers remained optimistic towards the one-year business outlook, with sentiment strengthening for the second month to a five-month high. As a result of reduced output, firms continued to cut their purchasing activity, with the result extending the current run of contraction to fifth months. The latest decline in input buying was faster than in June, said IHS Markit.

On the cost front, input prices faced by Indian manufacturers continued to fall. However, the rate of decrease moderated from June, but remained far softer than April’s survey record. Panellists said subdued demand for most goods more than offset the inflationary effects of shortages in some raw materials.

Experts say the aftershocks of the lockdown continued to weigh on domestic industry, even as an uneven recovery started taking shape.