PMI manufacturing rises to 10-month high in Nov on high domestic demand

 A day after the release of Gross Domestic [Product (GDP) data, the IHS Markit Purchasing Managers' Index (PMI) survey painted an optimistic picture of manufacturing as the index zoomed up to a ten-month high in November due to high domestic demand. Going forward, high cost inflation, along with the new Coronavirus (Covid-19) wave, could spoil the party.

PMI rose to 57.6 in November from 55.9 in the previous month, the highest figure since January this year. Moreover, the headline figure was well above its long-run average of 53.6. In the PMI lexicon, a figure above 50 points to growth, while the one below this mark denotes contraction.

On Tuesday, eight-industry core sector growth also indicated a bright outlook after GDP data though the numbers were for October. After slipping to 4.5 per cent in September due to late rains, the core sector output grew by 7.5 per cent in October. Manufacturing grew by 5.5 per cent during Q2FY22 year-on-year, according to GDP data. It also rose almost 4 per cent compared to the corresponding pre-covid period of 2019-20.

Meanwhile, good companies started hiring additional hands in November following three successive months of job shedding. However, the pace of job generation was still moderate. Although fractional overall, the latest expansion was only the second over the past 20 months.

Cost push inflation remained high due to demand-supply mismatches and rising transport costs. Input prices increased at a rate that was broadly similar to October's 92-month high. Companies transferred to their clients part of the additional cost burden by lifting output charges. That said, the rate of inflation was only moderate.

Although manufacturers remained upbeat about growth prospects, the overall level of positive sentiment slipped to a 17-month low. Companies were concerned that inflationary pressures could dampen demand and restrict output in the year

ahead.

"The key threat to the outlook, in addition to potential new waves of COVID-19, is inflationary pressures. For now, companies are absorbing most of the additional cost burdens and lifting output charges only moderately," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

She said should raw material scarcity and shipping issues continue to feed through to purchasing prices, substantial increases in output charges could be seen and demand resilience would be tested.

Manufacturers stated that strengthening demand, improving market conditions and successful marketing boosted sales in November. Factory orders rose for the fifth successive month and at a pace that was the fastest since February.

Underlying data suggested that the domestic market was the main source of sales growth, as new export orders rose at a slight pace that was weaker than in October.

Buoyed by the pick-up in demand, companies stepped up production volumes during November. Output rose sharply and at the fastest rate in nine months.

Greater production requirements and restocking efforts encouraged manufacturers to purchase additional inputs in November. Subsequently, inventories of raw materials and semi-finished items increased further. The pace of accumulation was sharp and the second-strongest recorded since data collection started in March 2005, surpassed only by that registered in February.

On the other hand, post-production inventories decreased in November as manufacturers fulfilled orders directly from stocks. The pace of contraction eased from October, but remained sharp.