Manufacturing PMI falls to an eight-month low

New Delhi: India’s manufacturing activity in October grew at the slowest pace in eight months, dragged down by slowing demand in the consumer goods segment, even as new orders dropped to the lowest in a year and cost pressures intensified, a private survey said.

The purchasing managers index (PMI) fell to 55.5 in October from 57.5 in September, according to S&P Global Market Intelligence. Though the October PMI Manufacturing data was above its long-run average of 53.9, it was the slowest rate of expansion recorded since February. The 50-mark separates expansion from contraction.

The survey pointed to the rate of job creation being the slowest since April, with 4% of companies hiring additional people and 95% not hiring new staff.

Business confidence, the survey said, slipped to a five-month low amid concerns surrounding inflation and demand. This comes amid a slowdown in global trade due to slower growth in major economies and persistent inflation, financial vulnerabilities and geopolitical tensions in the Middle East and Ukraine.

“The survey’s new orders index slipped to a one-year low, as some firms raised concerns about the current demand picture for their products. Consumer goods were behind most of the slowdown, recording considerably softer increases in sales, production, exports, input inventories and buying levels,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Growth of several measures subsided as demand for certain types of products faded. There were substantial, albeit slower, increases in total new orders, production, exports, buying levels and stocks of purchases,” the survey said.

“Hiring activity faded, and business confidence slipped to a five-month low. Meanwhile, cost pressures intensified while output price inflation receded,” it added.

Interestingly, the output of eight core infrastructure sectors, which accounts for two-fifths of India’s industrial output, expanded at 8.1% in September, according to official data released on 31 October.

This was its slowest pace in four months, as seven of the sectors, barring the fertilizer industry, saw slowing output growth.

Commerce ministry data showed that output growth of coal, steel, electricity, natural gas, refinery products, cement and fertilizers grew at a high single digit during September.

“India’s manufacturing sector generated substantial growth in October despite a challenging global economic environment. Still, insights from surveyed purchasing managers pointed to the deceleration of several measures,” De Lima said.

The S&P survey pointed out that while business sentiment remained firmly inside positive territory, it slipped to a five-month low amid concerns surrounding the path for inflation and demand.

During October, growth eased to an eight-month low, weighed by competitive pressures and weak demand at some plants, the survey said, adding that the granular data highlighted a marked slowdown in the consumer goods sector.

“We saw a further indication of broadly stable inflationary forces across the manufacturing industry. It appears that a moderate increase in input costs was simply passed on to clients,” De Lima said.

“Nonetheless, qualitative evidence from the future output question revealed an interesting finding, as reports of rising inflation expectations were expected to dent demand and subsequently production growth over the course of the coming 12 months,” she added.