Manufacturing grows at slowest pace in 10 months

The country’s manufacturing activity expanded at its slowest pace in 10 months in September, data released by the Purchasing Managers' Index (PMI) today showed.

The HSBC Markit PMI, based on a survey of 500 companies, slid to 55.1 in September, compared to 57.2 a month ago. This is the second month in a row that PMI has fallen. A reading above 50 indicates expansion in manufacturing activity.

"The manufacturing sector shows signs of cooling after a red-hot pace earlier in the year. Capacity constraints may be partly responsible for this, in addition to the fading fiscal stimulus," said Frederic Neumann, Co-Head of Asian Economics Research at HSBC.

Jobs were the other dampener. The PMI data showed that employment in the manufacturing sector decreased for the third successive month. "Anecdotal evidence suggested that employees leaving companies were not being replaced. However, the decline in staffing levels remained marginal," the report said.

The government has already said the economy would expand at a slower pace in the second quarter (July-September) than the 8.8 per cent growth during April-June.

Earlier this week, the official numbers revealed that the six infrastructure industries that account for 26 per cent of the index of industrial production grew by 3.7 per cent in August, the lowest rate of growth in 13 months. "The soft infrastructure sector growth in August, coupled with the moderation in manufacturing PMI for the same month, leads us to believe that the industrial production growth in August will be a few percentage points lower than that of July," Deutsche Bank economists Taimur Baig and Kaushik Das said in a note.

While new order volumes rose due to better economic conditions, growth in overall new business intakes slowed for a second successive month to the weakest since November 2009.

Similarly, new export orders also rose at a slower rate in September.

A further increase in backlogs of work at manufacturers suggested that pressures on production capacity continued. Stocks of finished goods fell marginally due to higher new order volumes. Manufacturers also continued to increase stocks to accommodate higher production requirements.

September data signaled a marked rise in input costs faced by manufacturers. “Input price inflation has now been sustained for a year and a half. A further increase in raw material prices predominately drove the latest increase in costs, which was faster than that indicated in August. Nonetheless, output prices rose at a weaker rate in September, with strong competition for new business limiting the extent to which charges could be increased,” the report said.