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Manufacturing Purchasing Managers’ Index (PMI)

Manufacturing Purchasing Managers’ Index (PMI)

CONTEXT:

  • India’s manufacturing sector activity was largely flat in April, as rates of growth for new orders and output eased to eight-month lows amid the rise in COVID-19 cases.

KEY HIGHLIGHTS:

  • Monthly PMI Index: The seasonally adjusted Manufacturing Purchasing Managers’ Index (PMI) was at 55.5 in April, little changed from March’s reading of 55.4.

    • In PMI parlance, a print above 50 means expansion

    • While a score below 50 denotes contraction.

‘Further slowdown’

  • The PMI results for April showed a further slowdown in rates of growth for new orders and output.

  • The surge in COVID-19 cases could dampen demand further when firms’ financials are already susceptible to the hurdle of rising global prices.

Surging input costs:

  • Increase in input costs: On the prices front, survey also signalled a steep increase in input costs, the quickest since July 2014, and upward revisions to selling prices.

Demand and Export:

  • Demand: While output and sales increased at the slowest rates since last August due to an intensification of the COVID-19 crisis, there was a faster upturn in international orders.

  • New export orders: It increased for the eighth consecutive month in April and at the fastest rate since October 2020.

  •  The rise was associated with a pick-up in international demand for Indian goods.

Purchasing Managers’ Index (PMI):

  • Purchasing Managers’ Index (PMI) is an indicator of business activity — both in the

    1. Manufacturing and

    2. Services sectors.

  • It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before.

  • Notably, as PMI is a market sentiment tracker that compares the current month with the previous, it is season sensitive.

  • It is calculated separately for the

    • manufacturing and

    • services sectors and

    • then a composite index is constructed.

  • Published by:

    • PMI data is compiled by Markit Economics and

    • Published by the Japanese firm Nikkei.

  • A standard questionnaire is administered to 500 private companies (PSUs are excluded) and the comprehensive score is arrived at.

    • It covers only private sectors

  • 5 parameters in PMI:

    1. New orders (30% weightage)

    2. Output (25%)

    3. Employment (20%)

    4. Supplier’s delivery (15%) and

    5. Stock of purchases (10%).

  • The headline PMI is a number from 0 to 100.

    • > 50: A PMI above 50 represents an expansion when compared to the previous month.

    • < 50: A PMI reading under 50 represents a contraction, and

    • = 50: A reading at 50 indicates no change.

SOURCE: The Hindu