The June survey of Russian purchasing managers from VTB Capital showed a further overall improvement in manufacturing sector business conditions, and at a strengthening pace. Output rose at the fastest rate since April 2008, supported by further new order growth. Inflationary pressures remained sharp, as input prices increased at the second-fastest rate since July 2008. However, manufacturing employment fell marginally on the month, following increases in April and May.
The headline figure from the survey is the seasonally adjusted Russian Manufacturing Purchasing Managers’ Index, a composite indicator designed to track overall business conditions. Any figure greater than 50.0 signals improvement. The PMI has signaled overall improvement in the manufacturing business climate for the past six months and rose to 52.6 in June, the highest reading since April 2008. It was also greater than the long-run survey average of 52.1.
Contributing to the upward movement in the headline index in June were the new orders, output and suppliers’ delivery times indices. This was partly offset by falling employment and a sharper drop in stocks of purchases.
The Russian Manufacturing PMI is derived from a monthly survey of 300 purchasing executives in Russian manufacturing companies which has been conducted since September 1997. Readings above 50.0 signal an increase on the previous month while readings below 50.0 signal a contraction.
Output and demand
New orders received by Russian manufacturers rose at a sharper rate in June. The pace of expansion was the fastest since last September and data signaled that the domestic market was a key source of improving demand, as new export business stagnated during the month.
New contracts supported output growth in June. Manufacturing production has risen for eleven months in a row, and the latest rate of expansion was the fastest since April 2008. Firms also increased their purchases of inputs at a robust pace during the month. Meanwhile, manufacturers continued to reduce backlogs of work at a sharp pace, suggesting spare capacity in the sector.
Commenting on the survey, Dmitri Fedotkin, economist at VTB Capital, reported: “In June, the Russian Manufacturing PMI rose to 52.6 (from 52.0 in May), suggesting the fastest rate of improvement in the manufacturing sector for over two years. Indeed, the output sub-index rose to 56.6, the strongest since April 2008, while the new orders sub-index has similarly strengthened to 53.5. At the same time, the new export orders sub-index eased to 50.1, reflecting weak external demand, while the employment index slipped marginally below the no-change 50 level. Both the input and output price indices have eased from the recent highs earlier in the month but nevertheless remain reflective of the comparatively high inflation.”
