Manufacturing Set To Lose Pace On Higher Input Costs.

A slowdown in the manufacturing sector – largely induced by higher interest rates and rising input costs – appears to be a reality. HSBC Purchasing Managers' Index (PMI) – an advance indicator of sorts – was estimated at 57.5 in May, compared to 58 in the previous month. Any reading over 50 indicates that the manufacturing sector will grow but a decline in the index points to a slowdown in the pace of expansion.

Overall growth slowed for a second consecutive month, while the expansion in new export business eased for the third month running. What is going to add further pressure is the trend of falling employment. "Despite evidence of ongoing capacity pressures, May data signalled a fourth decline in employment in the last five months.

Moreover, the latest decrease was the fastest in that period. Anecdotal evidence suggested that there was a lack of available labour to fill vacancies created by voluntary leavers (such as retirements and resignations)," the data released on Wednesday showed.

Labour shortage along with power outage meant that companies had sufficient backlog to clear. With the pipeline of new orders growing, supported by improved economic conditions in the West, there was more reason for the industry to be not too worried. Reflective of strong new order and output growth, purchasing activity at manufacturing companies in India increased substantially in May.

This also helped to boost stocks of purchases for the 27th month running. However, the rise in input buying has placed pressure on operating capacity at suppliers, leading to a lengthening in delivery times. Besides, some shortage in raw material, compounded the deterioration in vendor performance, do not augur too well for inflation management as scarcity will result in higher prices.

Source : timesofindia.indiatimes.com