October PMI

A sharp uptick in Manufacturing and Service PMI…

The Purchasing Managers Index (PMI) is reported by IHS Markit on a monthly basis on the first day of next month. The above chart clearly indicates an uptrend in both the services PMI and the manufacturing PMI. The level of 50 is the cut-off point for PMI. A level of above 50 indicates expansion while a level below 50 indicates contraction. The trend over a period of time gives a clear picture of whether the manufacturing and the services sector are expanding or contracting.

PMI Manufacturing flatters… 

Manufacturing PMI for the month of October came in at a 22-month high of 54.4. Manufacturing PMI is driven by 4 key factors viz. new orders, inventories, production, delivery schedules and employment implications. For the month of October, the manufacturing PMI was largely driven by new orders, output and higher inventory build-up. The only concern could be that manufacturing is still not creating enough jobs and that could be the next big challenge for the manufacturing sector. The pick-up in manufacturing has been led principally by consumer goods rather than capital goods indicating a greater focus on the India consumption story. The one key risk that the PMI indicates is that there has been a sharp rise in input costs as is already evident from the rising WPI figure.

Services PMI best in 4 years… 

Services PMI at 54.5 came in at a 4-year high. Interestingly, this is the 16th successive month when the Services PMI has been above the 50 mark indicating a consistently upward trend. Like in the case of manufacturing, the services sector also saw a sharp rise in outstanding orders. This is largely because order flows are improving but capacity and manpower has not kept pace proportionately.

Summing up the picture…

The PMI manufacturing and the PMI Services are at a multi-year high and that shows a clear sign of a turnaround. Of course capacity expansion and manpower addition needs to keep pace. More importantly, this PMI numbers need to be looked in conjunction with the core sector number which showed a 5% growth. This could have a positive impact on IIP. Over the last few months IIP has been lagging because manufacturing has not kept pace. October PMI is a sign that, perhaps, that void may be getting filled. That should be the good news! ©

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