IN: PMI Manufacturing Index

Thu Oct 01 00:00:00 CDT 2015

Actual Previous
Level 51.2 52.3

Manufacturing had a poor September if the latest PMI survey is anything to go by. At 51.2, the headline activity index was more than a full point short of its August level and at a 7-month low.

The decline reflected slower growth of output and new orders, the former seeing its weakest rate since May 2014 on the back of reduced gains in all three of the main manufacturing categories. Overall new business rose by the smallest amount since June and incorporated the worst performance by the export community in a year. Unfilled orders were down at much the same pace as in August. Against this backdrop, the sector's headcount declined having only stagnated in the previous month.

Further evidence of limited inflationary pressures was apparent in the first back-to-back drop in input costs since the financial crisis. In turn, this allowed manufacturers to reduce their output prices again and at roughly the same rate as in mid-quarter.

Having already seen the RBI cut key interest rates earlier this week today's survey is unlikely to have much impact on financial markets. Still, the findings provide plenty of justification for Tuesday's monetary ease and, despite the central bank's hints that rates should now be on hold for some time, suggest that another reduction might not be too far away.

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'.