Manufacturing PMI slips to 22-month low of 50.7 in October

02 Nov 2015 Evaluate

Showing further loss of growth momentum, manufacturing activity in India fell unexpectedly in October, highlighting weaker growth of both output and new orders. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index, showed a weakest rise in output in current 24-month, posting a 22-month low of 50.7 in October against 51.2 in September. However, the PMI has recorded above the crucial 50.0 threshold in each month since November 2013 that gave some solace along with report of companies adding to their workforces for the first time since January and continued to increase buying levels. A figure above 50 represents expansion while one below that means contraction.

The survey though said that business conditions across the Indian manufacturing economy improved further in October but the output growth eased in the month on the back of a slower increase in new orders. Rates of expansion in both production and order books were the weakest in their current 24-month sequences of growth, with panellists reporting challenging economic conditions and a reluctance among clients to commit to new projects.

Sectorwise, consumer goods was the best performing one in October, while improving operating conditions were also seen in the intermediate goods sub-sector. Conversely, capital goods firms saw business conditions deteriorate in the latest month as output and new orders declined for the first time since September 2014 and August 2014 respectively.

The survey further pointed that October saw inflationary pressures return to India’s manufacturing economy, with average purchase costs rising, amid reports of higher metal, paper and food prices. Part of the additional cost burden was passed on to clients as tariffs were raised. Nonetheless, the rate of charge inflation was marginal overall. The rise in inflationary pressure could lead to RBI pausing its loosening cycle for the rest of the year.

On positive side, employment rose for the first time since January, although only marginally. Those companies reporting higher staffing levels commented on expectations of a pickup in demand in coming months. Also, the new business from abroad placed with Indian manufacturers rose for the twenty-fifth straight month in October. However, growth was little changed from the marginal pace seen in September.

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