Manufacturing PMI falls to 22-month low

Inflation shows upward pressure, firms recruit additional workers

Manufacturing sector growth slowed to almost a two-year low in October despite the month being a festival season, showed the widely-tracked Nikkei Purchasing Managers’ Index (PMI).

Output growth eased due to a slowdown in new order growth. However, companies employed additional hands, for the first time since January, on the hope of an increase in demand.

PMI fell to a 22-month low of 50.7 in October against 51.2 in September. A reading above 50 indicates expansion and one below it shows contraction.

Inflation, meanwhile, returned to some commodities because of which the Reserve Bank of India might not cut interest rates.

Pollyanna De Lima, economist at Markit and author of the report, said: “A return to inflationary pressures, meanwhile, indicates that the RBI may pause its loosening cycle for the rest of the year following a 50-basis-point cut to the key repo rate in September."

Though September and October PMI numbers showed growth, the latter month’s numbers reflected a slowdown in the rate of expansion.

If manufacturing fails to rise in the coming months, the government might find it difficult to meet its truncated gross domestic product (GDP) growth target of 7.5-8 per cent for the current financial year. The government had earlier pegged economic growth at 8.1-8.5 per cent for 2015-16. The first quarter had delivered an economic growth rate of seven per cent. The second quarter data would come by this month-end.

PMI was indicative of a weaker improvement in business conditions across the sector, said Markit Economics, a compiler of PMI. Rates of expansion in production and order books were the weakest in the current 24-month sequences of growth, with panellists reporting challenging economic conditions and a reluctance among clients to commit to new projects.

Despite a slowdown in new order growth, manufacturers hired additional workers in October. Employment rose for the first time since January, though only marginally. Those companies reporting higher staffing levels commented on expectations of a increase in demand in the coming months.

Sectoral data indicated that consumer goods was the best performing category in October, while improving operating conditions were seen in the intermediate goods sub-sector. Conversely, capital goods firms saw deteriorating conditions in the latest month as output and new orders declined for the first time since September 2014 and August 2014, respectively.