Manufacturing activity expanded in October but at a slightly slower rate than in September according to the new PMI survey. In fact, at just 50.7, business growth was only slightly above the 50 stagnation mark and the weakest in some twenty-two months.
The deterioration reflected smaller gains in output and new orders, both recording their worst performances during the 24-month period of expansion to date. Consumer goods and intermediates at least saw positive growth but capital goods contracted for the first time in more than a year. Employment actually increased for the first time in 2015 but only marginally.
Meantime, inflationary pressures picked up somewhat as higher metal, paper and food charges ensured a rise in manufacturers' total input costs although, historically, the latest increase was only mild. As a result, factory gate prices were raised but output price inflation was still only marginal.
Overall the October results are disappointing and point to not only a loss of momentum at the start of the new quarter but also the potential for a further deceleration to come. Some rundown in stocks last month may help to support production through year-end but without a recovery in orders, this will be short-lived. Slightly firmer inflation should see the RBI on hold until next year but another cut in official interest rates is probably not very 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'.