PMI points to manufacturing growth easing to 8-month low

India’s manufacturing sector experienced a significant slowdown in October, with the Purchasing Managers’ Index (PMI) falling to 55.5, marking an eight-month low compared to the previous month’s 57.5. The data, released on November 1, highlighted the impact of cost pressures and subdued demand for specific products.

Factors Behind the Slowdown

1. Competitive Pressure and Weak Demand: Growth in manufacturing activity eased in October due to competitive pressure and weak demand in some industrial plants. This combination affected the overall expansion of the sector.

2. Slower New Order Growth: Although there was an increase in new orders, the rate of expansion was the slowest in a year, with a particular impact on consumer goods.

3. International Sales Growth: While international sales remained historically strong, October saw the weakest rise in four months, indicating a loss of momentum in this aspect.

Current Performance and Outlook

1. Above Long-Run Average: Despite the slowdown, the October PMI reading remains above the long-run average of 53.9. However, it represents the slowest rate of expansion since February.

2. Business Sentiment: Business sentiment remains positive, but it slipped to a five-month low due to concerns regarding inflation and demand in the market.

3. Mixed Price Trends: In terms of pricing, the report highlights a mixed bag – both input costs and output charges increased, but the inflation of input costs accelerated, while factory gate charges rose to a weaker extent.

Employment and Capacity

1. Slow Job Creation: The rate of job creation in the manufacturing sector was the slowest since April, even as new business orders continued to drive recruitment efforts among goods producers in India.

2. Sufficient Capacity Levels: Indian manufacturers maintained sufficient capacity levels, with backlogs of work showing little change since September. Suppliers were able to deliver inputs in a timely manner, and vendor performance remained stable.

Core Sector Growth Implications

• The deceleration in Manufacturing PMI for October is concerning, especially in light of recent data that revealed India’s eight core sectors posted the lowest growth rate in four months in September, at 8.1 percent.
• These core industries contribute more than 40 percent to the Index of Industrial Production (IIP), making them a lead indicator of industrial growth.

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