Home >Economy >Manufacturing PMI slips to the lowest in 10 months in May

Manufacturing activity dropped to its lowest in 10 months in May, barely managing to stay in the expansion zone, as the second wave of the covid pandemic triggered state-wide lockdowns and forced producers to reduce inventory amid damaged consumer sentiment.

Data released by data analytics firm IHS Markit on Tuesday showed manufacturing purchasing managers’ index (PMI) fell to 50.8 in May from 55.5 in April. A figure above 50 indicates expansion, while sub-50 signals contraction.

Pollyanna De Lima, economics associate director at IHS Markit, said the manufacturing sector is showing increasing signs of strain as the covid crisis intensifies. “Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the lowest rates of increase in 10 months. In fact, all indices were down from April. Growth projections were revised lower as firms became more worried about the escalation of the pandemic and local restrictions. The overall degree of optimism towards the year-ahead outlook for output was at a 10-month low, a factor which could hamper business investment and cause further job losses," she added.

Slippery slope
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Slippery slope

Industry lobby Ficci said in its latest quarterly survey on Monday that business confidence of companies dipped to its lowest in three quarters in May after posting a decadal high in the previous survey as the second wave hit.

The data analytics firm said the companies that were successful in securing new work during May purchased additional materials for use in the production process. “However, others refrained from lifting input buying due to fewer output needs and the covid crisis. Overall buying levels rose at the slowest pace in 10 months," it added.

May data continued to signal lengthening supplier delivery times, with vendor performance worsening for the third month. “The deterioration was linked to ag lobal shortages of raw material and the covid pandemic. Although new export orders also increased at a softer rate, the upturn was solid and outpaced the long-run series trend," the analytics firm said.

Raw material scarcity exerted further upward pressure on input costs. “The rate of inflation eased to a four-month low but remained sharp and above its long-run average. Panellists reported higher aluminium, chemical, copper, plastic and steel prices. Amid reports of ongoing efforts to protect margins from cost increases, firms lifted their selling prices again in May," IHS Markit said.

On the stocks front, there was a slight rise in input holdings and a solid contraction in post-production inventories.

A high-frequency indicator by QuantEco Research called Daily Activity and Recovery Tracker (DART) Index rose for the first time in 12 weeks in the week ended 30 May, led by improvements in mobility indicators and railway passenger movement. However, Yuvika Singhal, an economist at QuantEco Research, cautioned it may be too early to celebrate.

“Some key indicators still remain in the red. While some states and cities that have successfully bent the covid curve are commencing to ease curbs, many states have extended lockdowns. Given the magnitude and impact of the second wave, the exit from lockdowns at the state-level can be expected to be guarded and gradual at best," she added.

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