October composite PMI near four-year high signals economy turning the corner

The Composite PMI Output index, which reflects activity both in the manufacturing and services sectors, came in at 55.4 for October, up from 52.4 in September

Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

The Nikkei India Composite PMI Output Index, a gauge of private sector activity in the country, reached its highest level last month since January 2013. The gauge, which reflects activity both in the manufacturing and services sectors, came in at 55.4 for October 2016, up from 52.4 in September. As the chart shows, it is the highest level of activity in nearly four years.

The boost in the seasonally adjusted Purchasing Managers indices is an indication the economy is finally turning the corner, as was widely expected with the good monsoons and an uptick in consumption.

The big question: is investment demand too starting to revive? The PMI manufacturing survey for October said: “Strong inflows of new work imparted pressure on manufacturers’ capacity, as indicated by a further increase in outstanding business during October. The latest rise in backlogs was the fifth in consecutive months and the most pronounced since December 2013. The quickest rise in work-in-hand (both in progress and not yet started) was registered at investment goods producers, followed by intermediate and consumer goods producers respectively.” And the services PMI pointed out, “October data highlighted ongoing pressures on Indian service providers’ capacity, as unfinished business volumes rose for the fifth consecutive month.”

What’s more, new orders and new business improved in both the manufacturing and services sectors, according to the October PMIs. If the trend in rising PMIs is sustained, it would signal a turnaround for both investment demand and for employment. Polyanna De Lima, economist at Markit, writes, “Hopefully, the added pressure on capacity shown in the PMI surveys will translate into job creation as we move towards the end of 2016.”

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