Growth in Manufacturing: PMI and NIBRI

• 03 Nov 2020

Why in News

As per the IHS Markit India Purchasing Managers’ Index (PMI), India's manufacturing output showed the strongest growth in 13 years in October 2020 amid robust sales growth.

• The Nomura India Business Resumption Index (NIBRI) has also shown improvement.

Key Points

• Rise in PMI: The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose from 56.8 in September to 58.9 in October, and pointed to the strongest improvement in the health of the sector in more than a decade (13 years).
  
  • This is a third straight monthly improvement in PMI. In April, the index had slipped into contraction mode (27.4), after remaining in growth territory for 32 consecutive months.
  • In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
• Improvement in NIBRI:
  
  • NIBRI improved to 82.4 in October, a rise of 2.1 points from 80.3 in September and 73.6 in August.
  • It is the Japanese brokerage’s weekly tracker of the pace of normalisation of economic activity.
• Reasons:
  
  • Upturn in Sales: The upturn in sales was the strongest since mid-2008.
    
    • A strong jump in e-way bills (electronic permits for goods movement) has been seen for October, indicating that more goods were shipped within and across states in the month.
  • Rise in Export Orders: New export orders rose at a quicker pace, one that was the most pronounced in close to six years.
  • Improvement in IIP: The index of industrial production (IIP) shrank 8% in August on a year-on-year basis, marking a marginally improvement compared with July when output contracted 10.8%.
• Concerns: The compliance with government guidelines related to the Covid-19 pandemic caused a further reduction in employment. The fall was the seventh in consecutive months.

Purchasing Managers’ Index

• PMI is an indicator of business activity - both in the manufacturing and services sectors.
  
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • The PMI summarizes whether market conditions as viewed by purchasing managers are expanding, neutral, or contracting.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• The headline PMI is a number from 0 to 100.
  
  • PMI above 50 represents an expansion when compared to the previous month;
  • PMI under 50 represents a contraction, and
  • A reading at 50 indicates no change.
• The PMI is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
• PMI is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.

Source: IE