August manufacturing performance weakens; rebound expected: PMI

A leading international business survey on manufacturing on Tuesday showed a weaker expansion rate for both output and new orders for August 2015, but predicted a rebound in coming months.

The Nikkei India Manufacturing PMI (Purchasing Manufacturers Index) for the last month stood at 52.3 which is marginally down from July's 52.7.

An index reading of above 50 indicates an overall increase in the manufacturing sector, below 50 an overall decrease.

According to the PMI report published by the leading global diversified provider of financial information services -- "Markit", the data showed a weaker improvement in the health of the manufacturing sector.

The PMI which is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 300 industrial companies noted that consumer goods sub-sector outperformed the capital and intermediate goods in terms of growth of output, new orders and buying levels.

The report cited that the downward movement in the headline index was due to softer increase in output, new orders and stocks of purchases, which reflected weaker improvements in both domestic and foreign demand.

"Growth of Indian manufacturing production waned in August on the back of softer improvements in both domestic and foreign demand. This led firms to keep payroll numbers unchanged during month," Pollyanna De Lima, economist at Markit.

The index reflected a contraction in the post-production inventories at the sharpest pace since data was first collected in April 2005. This led to a rise in pre-production inventories.

"A sharp increase in buying levels coupled with a record drop in stocks of finished goods, however, indicates that output growth will likely rebound in coming months," De Lima elaborated.

The survey revealed that manufacturing employment remained unchanged in August from July, due to weak growth and economic uncertainty. The remaining subcomponent of the PMI -- suppliers' delivery time was broadly unchanged.

As per the data falling global commodity prices have resulted in an overall reduction in cost burdens which has provided companies with more room for price negotiations.

Input costs have decreased for the first time in six months. The reduction was also the fastest since March 2009. Average tariffs were, subsequently, reduced for the first time since April.

"As inflation concerns fade and demand growth loses momentum, further accommodative policy should not be discounted," De Lima added.

The PMI is a composite index based on five of individual indices namely new orders, output, employment, suppliers' delivery times, stock of items purchased and the overall delivery times.

Under the PMI manufacturing sector is divided into 8 broad categories of basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles and clothing, timber and paper and transport.