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Manufacturing PMI falls to 25-month low

Fresh calls for rate cuts to spur growth even as RBI keeps interest rates unchanged

Indivjal Dhasmana  |  New Delhi 

After record factory production growth in GDP data, PMI manufacturing down 25-month low

A day after official data showed high growth in the manufacturing sector, a record since the new gross domestic product series came out, the widely-tracked Nikkei purchasing managers’ index had quite a different story to tell. Manufacturing activities fell to a 25-month low in November because of a slower increase in new work and output.

Subdued demand prevented firms from hiring more hands. Input inflation rose at the quickest pace since May. Output prices were not raised that much, which prompted experts to call the Reserve Bank of India (RBI) to cut rates to spur growth, minutes before the RBI was to unveil its monetary policy review.

PMI fell to a 25-month low of 50.3 in November, from 50.7 in October. A reading above 50 marks expansion of the sector, while a score below this level means contraction.

On Monday, the official GDP data was released for the second quarter, ended September 2015. That data showed that manufacturing rose by a record 9.3 per cent in three months. This was the highest growth since the new GDP series came up from 2011-12.

After record factory production growth in GDP data, manufacturing PMI at 25-month low
Manufacturers indicated that new business inflows rose in November, marking a 25-month sequence of expansion. That said, the rate of growth was the weakest over this period. There were reports that growth of new work was hampered by subdued domestic demand and competitive pressures. Mirroring the trend for new orders, production increased at the softest pace in the current 25-month sequence of expansion.

Sub-sector data highlighted consumer goods as the best performing category, while operating conditions at intermediate companies deteriorated for the first time since December 2013.

New business from abroad increased further in November. Albeit slight, the rate of growth was the strongest in three months. New export orders rose at consumer and intermediate goods firms, while a contraction was seen in the capital goods category.

According to government data, merchandise exports declined for 12 consecutive months in October.

Following a marginal increase in the prior month, manufacturing employment in India was broadly unchanged in November. This was signalled by the respective index recording only fractionally above the no-change mark of 50.

Outstanding business held by Indian goods producers rose in November, amid evidence of delayed payments from clients and labour shortages. Inventory levels decreased during November.

Stocks of purchases declined for the first time in one-and-a-half years, which panellists associated with falling quantities of inputs bought. Holdings of finished goods were depleted at a marked rate, which was the second-fastest in three years.

Input cost inflation accelerated to the strongest in six months during November, but remained below the long-run series average. Companies reported higher prices paid for metals, textiles and food.

Factory gate charges were subsequently raised. The rate of inflation was, however, only marginal.

Pollyanna De Lima, economist at Markit Economics, which is the compiler of the PMI survey, said, “The slowdown in growth combined with weak inflationary pressures support further rate cuts. Input cost and output charge inflation as measured by the survey were much lower than their respective long-run averages.”

First Published: Wed, December 02 2015. 00:34 IST
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