Levels of business activity in manufacturing continued to rise in February according to the new PMI survey. However, at 51.2 last month's headline index was down 1.7 points versus its January reading and indicative of the slowest pace of growth in since last September.
Losses amongst the composite index's components were broad-based and reduced rates of improvement were also apparent in each of the three monitored output sectors. Indeed, overall output growth slipped beneath its long-run average and the smallest increase in new orders in five months, mainly due to soft domestic demand, suggested little scope for any immediate pick-up. Backlogs were up just marginally. As a result manufacturers trimmed payrolls although the reduction was relatively slight.
Meantime, inflation news was moderate. Thus, while input costs saw their first decline since March 2009, factory gate prices rose again. That said, the inflation rate was still the lowest in five months as competitiveness pressures continued to limit businesses' room for manoeuvre.
Overall today's results are disappointing and the loss of momentum in the sector combined with generally favourable developments in inflation should leave financial markets looking for additional monetary easing from the RBI before long.
Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic survey data such as the Markit PMIs, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
The HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Indian GDP. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.