Output and new orders rise, but job losses continue amid profit margin concerns, notes IHS Markit survey
Output and new orders rise, but job losses continue amid profit margin concerns, notes IHS Markit survey
India’s manufacturing sector saw an expansion in output and new orders in February, rising from 54 in January to 54.9 for the month, according to the IHS Market Purchasing Managers’ Index (PMI). A reading of 50 on the PMI indicates no change in activity levels.
The manufacturing sector expanded for the eighth month in a row in February, with the PMI staying above the long-time average of 53.6. Favorable demand conditions raised trade optimism to the highest level since last October, although it is still below the long-term average.
However, despite a pick-up in demand and input price inflation falling to a six-month low, employment in the sector declined, although job losses were at their lowest in three months.
The PMI, which is based on a survey of purchasing managers of 400 manufacturing units, is based on interviews conducted between February 10 and 22, and thus does not include the implications of Russia’s invasion of Ukraine last week.
IHS Markit economist Shreya Patel said the uptick in orders helped reduce finished goods stocks, but producers remained concerned about threats to growth and profit margins.
“Most prominently, cost pressures remained elevated as a result of shortages, while delivery times were once again prolonged. However, a major threat to manufacturers comes only from a marginal increase in selling prices. Despite sharp rise in expenses, firms pass on only a part of this burden to customers, which suggests pressure on profit margins,” she said.
The continued growth in the order backlog could drive employment levels to rise in the coming months, should capacity pressures continue, even as the manufacturing sector faces an omicron wave, Ms Patel said.
Despite purchase price inflation remaining at a six-month low, IHS Markit said cost pressures remain strong. It added that a part of this additional cost burden was passed on in the form of higher sales charges, although the rate of increase was modest.