Manufacturing activity improves in Nov, but firms cut operating costs, jobs

However, the upturn remaining subdued compared to earlier, growth rates for new orders and production remained modest

Manufacturing activity gained pace in November but as firms sharply cut operating costs, jobs losses were reported for the first time in 20 months, said a monthly global survey released on Monday.

The widely tracked Nikkei India manufacturing Purchase Managers’ Index (PMI) rose to 51.2 in November from October’s figure of 50.6, which was a two-year low. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

However, the upturn remained subdued compared to earlier, while growth rates for new orders and production were modest. As a result, more firms reported that they have had to resort to layoffs.

“A number of companies indicated that workloads had been managed by existing staff, while others cited the non-replacement of retirees and non-renewal of temporary contracts,” said the PMI survey.

To tighten their belts, firms also scaled back on input purchasing — which declined for the fourth month. Subsequently, stocks of purchases continued to fall for the fourth straight month. Rates of contraction for both input buying and inventories were marginal.

Holdings of manufactured goods also declined, with the pace of depletion being solid in spite of softening from October.

Consumer goods provided the main impetus to overall growth, while the intermediate goods category returned to expansion territory. Conversely, there was a solid deterioration in operating conditions at capital-goods makers.

Manufacturing production increased only moderately in November, albeit at a quicker rate than October’s two-year low.

Growth was supported by the launch of new products and better demand, though restrained by competitive pressures and unstable market conditions, the survey said. It also pointed out total sales increased for the twenty-fifth month in a row, with growth strengthening from October’s recent low. 

Some firms were able to secure new work amid successful marketing and strengthening demand, but others struggled in the face of competitive conditions, a challenging economic situation and troubles in the automotive sector.

Manufacturers were partly helped by external markets, as signalled by a further expansion in international sales. The increase in exports was slight, however, and among the weakest over the past year-and-a-half.

“PMI data continued to show a lack of inflationary pressures in the sector, which, combined with slow economic growth, suggests that the RBI (Reserve Bank of India) will likely extend its accommodative policy stance and further reduce the benchmark interest rate during December,” said Pollyanna de Lima, principal economist at IHS Markit.

Business sentiment strengthened in November, with panel members expecting advertising efforts and product diversification to support output growth in the year ahead. That said, the Future Output Index was well below its average, as a number of firms were concerned about the state of the economy.

On the prices front, both input cost inflation and output charges saw marginal increases. Both have been moderating in the current fiscal year.

In neighbouring China, PMI data for November signalled a “further modest improvement” in the health of its manufacturing sector. This was attributed to “solid increases” in output and new business. Employment in the sector also remained broadly stable, the survey added.