Manufacturing bounces back in January, firms on hiring spree

PMI rises to 51.1 points; RBI likely to keep rates unchanged as price pressures mount

After contracting in the previous month, manufacturing jumped to a four-month high in January thanks to stronger demand, showed Nikkei purchasing managers’ index (PMI) survey. Firms hired more people to keep up with the production demand. However, investment goods output and new orders fell in the same period, raising concerns about future manufacturing growth.

Inflationary pressures remained on the upside and Reserve Bank of India is not expected to cut the policy rate on Tuesday.

PMI rose to 51.1 points in January from 49.1 in December. A reading below 50 denotes contraction while one above that shows expansion. “Alongside a resumption of output at some firms impacted by December’s flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients,” said Markit Economics, the firm which compiles PMI data.

Although the rate of expansion was moderate, it was the sharpest in the past four months. Both levels of production and total new business registered mild growth.

 

The consumer goods sub-sector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contrast, producers of investment goods saw output and new orders fall.

Production volumes stagnated in the intermediate goods category. The trend in new export order inflows strengthened amid reports from companies of improved sales demand. “The level of income new export business has now risen in each of the past 28 months,” Markit said.

According to official figures, merchandise exports contracted for 13 months in a row till December 2015. While PMI declined to 50.7 points in October from 51.2 points in the previous month, official figures showed that manufacturing was up almost 10 per cent in October. As such, the PMI numbers should be cautiously interpreted.

According to Markit, January saw mild job creation in the manufacturing sector with headcounts added across the consumer, intermediate and investment goods categories. However, January’s increase in employment was insufficient to reduce the pressure on manufacturers’ capacity.

Price pressures remained on the upside at the start of 2016, with input costs and output charges both rising during January. Markit economist Pollyanna De Lima said, “Although the RBI is likely to continue its monetary policy loosening cycle in 2016, February’s meeting will probably see the repo rate remain unchanged at 6.75 per cent as the central bank will remain wary of inflationary pressures building in the country.”