Manufacturing growth steadied in May, as export orders hit an 11-year high and companies could secure fresh deals, despite hiking selling prices at the fastest pace in over eight-and-a-half years to pass on the spike in input cost burdens to clients.
The seasonally-adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) eased just a tad to 54.6 in May from 54.7 in the previous month. But it still remained well over the trend average, pointing to a “sustained recovery across the sector”, according to a release by S&P Global. An index reading of 50 or above suggests expansion and below it points at contraction. With this, the index has remained in the expansionary zone for the 11th straight month.
Elevated PMI augurs well for a rebound in manufacturing in the June quarter after the latest GDP data showed a 0.2% year-on-year decline in the sector in the three months to March, albeit on an inconducive base.
“Although softer than in April, the rate of inflation remained historically elevated,” said the release. “Business sentiment was dampened by inflation concerns in May, with the overall level of confidence the second-lowest in just over two years.”
Input costs rose for 22 months in a row in May, with companies reporting higher prices for electronic components, energy, freight, foodstuff, metals and textiles.
However, thanks to strong sales, jobs in the manufacturing sector rose further in May. Although only slight, the rate of employment growth inched up to its strongest since January 2020.
Demand showed signs of resilience in May, improving further in spite of another uptick in selling prices. Companies reported a marked increase in total new orders that was broadly similar to April.
Amid reports of new business gains, sustained improvements in demand and looser Covid-19 restrictions, manufacturers continued to scale up production in May.
Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said: “While firms appear to be focusing on the now, the survey’s gauge of business optimism shows a sense of unease among manufacturers. The overall level of sentiment was the second-lowest seen for two years, with panelists generally expecting growth prospects to be harmed by acute price pressures.”
Capacity pressures among goods producers remained mild in May, as reflected in a marginal increase in outstanding business volumes.