India: Manufacturing and services PMIs fall in May
June 5, 2018
The composite Purchasing Manager’s Index (PMI), produced by Nikkei and IHS Market, fell to 50.4 in May from 51.9 in April. Despite the fall, the index remained above the 50-point threshold that separates expansion from contraction in the private sector for the third consecutive month.
The manufacturing PMI backtracked in May, dropping to 51.2 from 51.6, following the first increase in four months in April. Nonetheless, the index remained above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since August 2017.
Conditions in the manufacturing sector improved at a weaker pace in May as output and new order growth slowed. Output rose for the tenth month running, with respondents reporting stronger demand. Concurrently, new order growth also ticked up in the month, supported by an acceleration in new export orders. In response to greater production and new work, firms continued to increase hiring levels. In addition, outstanding work increased in May due to higher volumes of new business, although delayed payments from clients also played a part. Manufacturers eased their purchasing activity for the first time in seven months. In terms of inventories, pre-production stocks increased and post-production stocks were further depleted in May. On the price front, manufacturers faced stronger input cost inflation in May on the back of higher prices for raw materials, including oil and steel. Consequently, firms raised their selling prices at the fastest pace since February. Looking ahead, business sentiment for the coming 12 months remained in optimistic territory in May.
The Nikkei services PMI returned to contractionary territory after coming in above the 50-point threshold in March and April, decreasing to 49.6 in May from 51.4 in April. The slide came on the back of the first drop in business output in three months and a slowdown in new orders growth. Consequently, job creation rose at a weak pace. Outstanding business ticked up in May, partially due to delayed client payments. In terms of prices, input costs climbed higher amid higher wages and increased prices for fuel and vegetables. Businesses were restrained from raising their selling prices, however, and output inflation moderated to an almost one-year low. Meanwhile, and despite the drop in the headline figure, business sentiment in the services sector regarding the coming 12-month period soared to an over three-year high.
Author: Lindsey Ice, Economist