The September Index of Industrial Production (IIP) numbers were supposed to provide clues to:
1) Whether the economy has bottomed out;
2) Whether inflation has slowed down consumption;
3) Whether the momentum in capital goods seen in the last few months continues.
The IIP growth at -0.4% year-on-year (y-o-y) is much lower than estimates, since economists were expecting higher growth based on upbeat data for the core sector. More worryingly, it’s also lower on a sequential basis and the IIP figure has been coming down every month since May. It has come down from 170.3 in May to 163.6 in September. No sign of a bottom there. The same trend is seen in all the components of IIP—manufacturing, mining and electricity.
The only segment that shows a sequential jump from the August number is consumer durables, the index for which moved up from 279.6 in August to 303.2 in September. Note that this is much lower than the May figure of 310.1. The consumer non-durables index continues to slide every month. While consumption has slowed, there may well be a jump in consumer durables perhaps due to festival demand.
The 12.2% y-o-y decline in the capital goods index in September is mostly because of the base effect—capital goods production moved up sharply in September last year compared with August. However, sequentially also, the capital goods index was down marginally, from 252.6 in August to 251.9 in September. But the index continues to be well above the level of 207.9 it was at in April. It also doesn’t make sense to track the capital goods numbers on a monthly basis, as capex is lumpy and the three-month moving average for this index continues to increase. Nevertheless, this is perhaps more because it had sunk to a very low level and a bounce is in order. The slide in September could indicate the weakness in the bounce.