The ABN Amro Purchasing Managers’ Index (PMI) for March confirms our assessment of an improvement in the economy in March. At 49.5, the seasonally adjusted index is marginally below the 50 mark, which indicates the manufacturing sector neither expanded nor contracted in March compared with the previous month.
A reading below 50 signifies contraction while one above 50 shows expansion.
It is the first time manufacturing has shown signs of stability after four consecutive months of significant contraction.
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The rise in the new orders sub-index to 49.5 is the most heartening, since today’s orders are tomorrow’s output.
Interestingly, the export orders sub-index actually deteriorated from February, underlining the continuing contraction in global demand and increased competition as exporters vie with one another for a share of a shrinking pie. But, as ABN Amro senior economist Gaurav Kapur says, that has been more than offset by an improvement in domestic orders reported by many firms.
Yet another indicator of improving activity was seen from the sub-index that tracked quantity of purchases by firms, which was almost flat at 49.8. That means the contraction in input purchases by firms has stopped, implying concern over future demand is diminishing.
One caveat is that the economy is usually strong in March, on the back of higher government spending, but PMI is seasonally adjusted, which should take care of that effect.
Retrenchment continued in March, with 5.8% of those surveyed saying that employment in their units was lower than in the previous month. The silver lining was that 4.4% said they took in new people. The employment sub-index for March was at 49.4, up from 49.1 in February, and the highest in the past four months.
Companies also have a long way to go before pricing power returns with the output prices sub-index at 47.6, although the pace of the fall in prices is slowing.
But while the PMI numbers for India show that manufacturing activity was almost flat compared with the previous month, the data for the rest of the world continue to show a deep manufacturing contraction.
In China, the CLSA manufacturing PMI deteriorated to 44.8 in March from 45.1 in February, indicating that manufacturing contracted more rapidly in March and that hopes of a rapid turnaround in the Chinese economy may have been premature.
In Japan, although the Nomura/JMMA Japan Manufacturing PMI rose to a seasonally adjusted 33.8 in March from 31.6 in February, that still shows an economy contracting at an alarming pace. The euro zone and UK PMI readings, too, show that while the rate of contraction may have slowed, manufacturing in these regions continues to shrink substantially.
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Graphics by Ahmed Raza Khan / Mint