Manufacturing firms hired more hands in May, says ABN Amro

Indian manufacturing sector hired more workers for the fourteenth consecutive month in May, to cope with bigger order-books and increasing production.

According to the third publicly released report by ABN Amro Bank on the perceived movement of the country's manufacturing sector, May saw one of the "sharpest improvement of operating conditions" in the sector during the last seven months.

According to the survey of 500 manufacturing firms measuring this month's change in production levels, fresh orders, raw material consumption, prices etc, nearly 57.7 per cent of the respondents reported increase in activity levels compared to April, after seasonal adjustments.

However, as a dampener, prices of both inputs as well as the products were reported to be on the rise by many participants.

"At 57.7 in May, up from 56.8 in April, the seasonally adjusted ABN Amro Purchase Managers' Index pointed to the sharpest improvement of operating conditions in the Indian manufacturing sector for seven months," the report said, adding, "members reported that a further solid expansion of employment and pre-production inventory levels at their plants had been supported by strong market demand and expectations of future growth."

The companies were quizzed for change in five criteria- inflow of fresh orders, levels of output, total number of employees, time taken by their suppliers and the quantity of raw material purchased. 32.4 per cent of the respondents reported an increase in their manufactured output in May compared to April while only 12.1 per cent said they had been forced to cut production.

Similarly, nearly 36 per cent of the 500 companies reported receiving higher number of orders compared to just 7.4 per cent who said they received fewer new orders than last month.

A similar trend was observed in the number of export orders received, with 15.8 per cent of the managers saying that they were higher than last month while only 2.2 per cent said it was lower.

The others in all cases reported similar levels as last month. Also, to keep up with the increased demand, 5.8 per cent of those quizzed reported raising their number of employees in May, while 2.2 per cent were forced to lay off workers.

The report, compiled on the basis of replies sent by purchasing executives from different geographical regions and industrial classifications, also pointed to a significant increase in prices of both raw materials and finished goods.

A big chunk of those interviewed, nearly 23.6 per cent, reported higher raw material prices in May compared to April while only 2.5 per cent said that their raw-material costs had come down.

Most of them, however, were able to pass on the costs to their customers, with nearly 16.2 per cent reporting a hike in their product prices against only 1.1 per cent who dropped their prices.

Abheek Barua, Chief Economist for ABN AMRO Bank in India pointed out that the data signalled towards a possible rise in inflation.

"Both input and output price inflation appear to be accelerating, suggesting that downstream producers are getting back pricing power and are able to pass rising costs on to consumers. This is good for company margins but means that interest rates are likely to rise further," he said.