The Manufacturing Purchasing Managers' Index (PMI) is a key economic indicator, which measures the health of the country’s manufacturing sector. PMI readings above 50 signal expansion (growth), while those below 50 indicate contraction. In this edition of chart of the week, we will compare the Manufacturing PMI for India to that of other industrially prominent countries around the world.
India's manufacturing PMI was strong a year ago in March 2022 with a reading of 54, and remained steady for Q1FY23, clocking in at 53.9 in June 2022. More recently, the PMI has been rising and reached a three-month high of 56.4 in March 2023. The increase was fueled by a capex push from the government in the FY24 budget, as well as the need to achieve the FY23 budget capex goal.
In the past two months, China's manufacturing PMI has been around the 50 mark, scoring 51.6 and 50 in February and March 2023, respectively. This indicates a marginal expansion in the sector after the easing of lockdown measures. China’s index had a steep rise at the beginning of FY23 but started a downward slope from July 2022 as lockdown restrictions hit the manufacturing sector.
The US PMI was the highest among the five countries a year ago, at 57.1 in March 2022, indicating strong manufacturing activity. However, the index has been on a steady decline since then as the US Fed raised interest rates, and fell below the 50 mark to 46.3 in March 2023. A survey conducted by the Institute for Supply Management (ISM) revealed that all the components of the US PMI were below the 50 mark for the first time since 2008. Analysts suggest that the PMI will continue to fall due to the ever-rising repo rates.
The United Kingdom's manufacturing PMI was recorded at 55.2 in March 2022 but dropped to 52.8 in June 2022. Although the index rose for two consecutive months at the beginning of 2023, it declined to 47.9 in March 2023 on the back of reduced demand and manufacturers’ tendency to maintain lower inventory levels.
Finally, Germany's manufacturing PMI was strong in March 2022 with a reading of 56.9, but it slightly dipped to 54.6 in April. However, the index has continued to fall and hit its lowest level of 44.7 in March 2023.
The PMI is a crucial instrument to assess the health of the manufacturing sector, and India's manufacturing PMI has been steadily rising in recent months. China's manufacturing PMI also expanded after the lifting of lockdown restrictions, while the US and UK saw declines. Germany's PMI has continued its worrying decline, indicating a sharp slowdown in the country's manufacturing sector. Overall, PMI readings for these countries are a useful recession signal and offer valuable insights into the condition of their economies.
It remains to be seen how these trends will unfold over the coming months. For now, India is in a relatively strong position.
