The HSBC Markit Purchasing Managers’ Index for Manufacturing rebounded strongly in December, indicating that the recovery continues to gather momentum. At 55.6, the index was well above November’s 53, indicating that manufacturing growth accelerated last month. The rebound marks a change from the recent trend which seemed to point to the recovery running out of steam. As HSBC senior Asia economist Robert Prior-Wandesforde put it, it’s time for a “sigh of relief”. But as we had mentioned when the November data came out, it was possible that growth in November may have been more muted because we were comparing it with the festival months of September and October. The strong PMI reading for December seems to confirm that.
The most heartening fact is that the new orders sub-index climbed to a 15-month high in December, an indication that the strength of the recovery is sustainable. Also, while stocks of finished goods increased, the accumulation was marginal, which indicates that as firms gain confidence and start stocking up on goods, inventories will rise, reinforcing the recovery. The other trend is that while manufacturers raised output prices at a moderate pace in December, the input price index accelerated to a three-month peak. This might squeeze margins and be a reason for the lack of increased hiring—the employment index was close to 50 in December, showing neither expansion nor contraction in employment. Manufacturers in the survey who cut jobs said it was an attempt to manage costs.
Graphics: Yogesh Kumar / Mint
The pace of recovery also continued to be strong in China where the HSBC Manufacturing PMI for December was at its highest since the survey began in 2004, indicating the strength of the rebound there. The worrying news, however, is that output prices in Chinese manufacturing too have risen at the fastest pace in 17 months.
In India, the rebound in demand so far has not resulted in serious levels of output price inflation, with most of the price rise confined to input prices. But with the PMI numbers showing that demand continues to expand rapidly, the central bank will have to start thinking of withdrawing liquidity, which continues to be abundant—on Monday, the amount parked in reverse repos amounted to a huge Rs83,575 crore.
Write to us at firstname.lastname@example.org