Sunil Jain: Firing on all cylinders

PERSPECTIVES

One of the consequences of the manufacturing sector doing so well is that, after a long time, the sector's ability to pass on cost increases to customers has gone up.

The Crisil Pricing Power Index which measures this fell from 0.61 in February this year to 0.58 by August and has only now started rising, a move that probably augurs well for corporate profitability in the months to come. ABN Amro's Purchasing Manager's Index (PMI) is even more encouraging, and points to the sharpest improvement in operating conditions for the past 13 months.

The Output Index which is part of the PMI has shown the sharpest hike since June last year, the New Export Orders Index has risen by a level that is the highest in the past 13 months, and the Backlog of Work Index, similarly, has never risen faster since November last year.

The downside is that the Employment Index is down in August (which means employment growth is not commensurate with output growth) and for the first time in many months, firms reported a decline in supplier performance and increased their time of delivery.