Manufacturing PMI drops to 2-year low in October on weak demand

A day after release of dismal core sector numbers, purchasing managers’ index (PMI) survey on Friday showed manufacturing activities’ growth fell to a two-year low in October. 

PMI fell to a two-year low of 50.6 in October from 51.4 in September. A print above 50 means expansion, while a score below that denotes contraction. PMI was lower at 50.3 in October, 2017.

The PMI report said the cooling of manufacturing sector conditions continued in October, with both factory orders and production rising at the weakest rates.

“Subsequently, job creation softened to a six-month low, while companies were reluctant to hold excess stock and lowered input buying in response,” it said. 

The PMI data for October showed a continuation of manufacturing sector weakness in India, “with sales growth softening to the slowest in two years", said Pollyanna De Lima, Principal Economist at IHS Markit.

"Weakening demand had a domino effect in the manufacturing industry, knocking down rates of increase in production, employment and business sentiment," Lima said.

With quantities of purchases contracting for the third month in a row, Lima pointed out that input costs fell for the first time in over four years during October. 

Official data released on Thursday showed that eight-industry core sector declined by a record 5.2 per cent in September.

The economist pinned hopes on expected rate cuts by banks for  higher consumption and economic growth.

"Following five successive cuts to India's benchmark rate, and an apparent lag in how quickly this feeds through to consumers, the impending lowering of commercial lending rates could potentially revive private consumption and help to shift growth higher as we approach the year end," Lima said.

Goods producers may then be encouraged to resume investments and create jobs, which combined with cuts to corporate taxes could bode well for the outlook, Lima said.

Finance minister Nirmala Sitharaman had announced cut in corporation rates for companies not availing the benefits of tax incentives and 15  per cent for the new manufacturing units from October.