February manufacturing PMI signals uptick in output, orders
- India’s manufacturing sector saw an expansion in output and new orders in February as per the IHS Markit Purchasing Managers’ Index (PMI), which rose to 54.9 from 54 in January.
- A PMI reading above 50 indicates expansion in activity levels.
- February marks the eighth month in a row that the sector has expanded, with the PMI staying above the long-run average of 53.6.
- Favourable demand conditions led to an uptick in business optimism to the highest level since last October, although it is still below the long-term average.
- However, despite the pickup in demand and input price inflation dropping to a six-month low, employment in the sector decreased, although the job shedding was the lowest in three months.
- The survey of purchasing managers from 400 manufacturing units was based on interviews conducted between February 10 and 22. Thus it does not incorporate the impact of Russia’s invasion of Ukraine last week.
- The uptick in orders helped shed finished goods’ stocks, but producers remained fretful about threats to growth and profit margins.
- Cost pressures remained elevated as a result of shortages while delivery times lengthened once again. However, a key threat to manufacturers comes from only marginal increases in selling prices.
About Purchasing Managers’ Index (PMI)
- It is a survey-based metric that inquires about changes in respondents' perceptions of important business factors during the preceding month.
- The PMI's goal is to offer company decision makers, analysts, and investors with information about present and prospective business conditions.
- It is computed individually for the manufacturing and services sectors before being combined to form a composite index.
- The PMI is a scale that ranges from 0 to 100.
- A score of more than 50 indicates expansion, whereas a score of less than 50 indicates contraction.
- A value of 50 shows that nothing has changed.
- When the previous month's PMI is greater than the current month's PMI, it indicates that the economy is contracting.
- It is normally published at the beginning of each month. As a result, it is regarded as an excellent leading predictor of economic activity.
- PMI assists in making informed judgments at an earlier stage since official data on industrial production, manufacturing, and Gross Domestic Product (GDP) growth arrives much later.
About IHS Markit
- IHS Markit compiles PMI for more than 40 economies around the world.
- IHS Markit is a global leader in data, analytics, and solutions for the sectors and markets that drive economies throughout the world.
PMI vs IIP
- It is not to be confused with the Index of Industrial Production (IIP), which measures the level of economic activity.
- In comparison to PMI, IIP covers a larger industrial sector.
- When compared to a normal Index of industrial production, however, PMI is more dynamic.
How is the PMI derived?
- A set of qualitative questions are used to calculate the PMI.
- Executives from a large sample of companies (hundreds) are selected to assess whether key indicators such as output, new orders, business forecasts, and employment were greater than the previous month.