Manufacturing indices at near historic lows: ABN Amro index

The Indian manufacturing sector indices have shown some signs of recovery in January but remain at near historically low levels on the ABN Amro’s Purchasing Managers’ Index (PMI).

According to the monthly report released today, what adds to the pressure is the sharp output price deflation, which poses a threat to employment. In January, there was some improvement in nine out of the 11 parameters, but the PMI was estimated at 46.7 as against the historic low of 40.6 recorded during the previous month.

The index provides an overview of the activity in the manufacturing sector and acts as a leading indicator for the economy. A reading below 50 indicates that manufacturing activity is declining.

The transport strike last month was partly responsible for the poor show. The two areas where further deterioration was observed were in the backlog of work and input prices.

With manufacturers concentrating their efforts on the completion of existing work orders and the despatch of finished goods in January, workloads fell further.

“Accordingly, volumes of outstanding business decreased rapidly during the month. This was reflected by the seasonally adjusted Backlogs of Work Index sinking to a new low,” ABN Amro said.

Similarly, companies reported a steep drop in their input costs during the month, as falling demand for fuel and raw materials in global markets exerted downward pressure. Almost 28 per cent of the survey panel spread across 500 companies reported lower input costs, while 8 per cent saw a rise in average input costs.

Lower input costs, plus falling demand, forced firms to cut prices and saw factory gate price deflated for the third consecutive month. Over 18 per cent of the respondents lowered their output prices, compared with less than 5 per cent, who witnessed an increase.