Indian manufacturers saw output growth wane in September, mirroring a slower increase in new orders. Staffing levels were, consequently, reduced and purchasing activity rose at the weakest pace since December 2013. Reflecting falling commodity prices, input costs decreased on average, and firms subsequently lowered their charges.
Dipping to a seven-month low of 51.2 in September (August: 52.3), the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' IndexTM (PMI)TM-a composite single-figure indicator of manufacturing performance-was consistent with a marginal improvement in business conditions across the sector. That said, the PMI averaged 52.1 for the July-September quarter, above the prior reading of 51.8.
Weighing on the PMI were slower increases in new orders and output. September data pointed to the weakest rise in production since May last year, with the slowdown evident across the three broad areas of the manufacturing economy. Growth of new work moderated to the weakest since June, reflecting challenging economic conditions.
New business from abroad expanded at the slowest pace in the current 24-month sequence of growth and one that was marginal overall. Panellists reported softer global demand for their goods.
Weaker increases in new business inflows and a cautious approach to costs reportedly led Indian manufacturers to shed jobs in September. This followed a stagnation in employment levels in the prior month. Despite the drop in workforce numbers, outstanding business levels fell for the second consecutive month. The rate of reduction in backlogs was broadly unchanged from the modest pace recorded in August. Evidence pointed to a lack of pressure on operating capacity.
September data highlighted the first back-to-back declines in input prices since the financial crisis. Although indicative of a moderate decrease in cost burdens, the respective index posted its lowest reading since February 2009. According to panellists, the overall reduction in costs reflected falling commodity prices.
Indian manufacturers passed lower input costs on to clients, with selling prices falling again in September. Output charges decreased at a slight rate, however, that was broadly in line with that seen in August.
There were divergences with regards to stock levels in September. Whereas post-production inventories decreased, holdings of raw materials and semi-manufactured goods rose. That said, stocks of purchases grew at the slowest rate in the current 16-month sequence of accumulation. This partly reflected a slower increase in buying levels. Purchasing activity expanded at the weakest pace since December 2013.
Pollyanna De Lima, Economist at Markit and author of the report, said, ''Despite having been supported by sustained increases in new work, growth of Indian manufacturing production in September was weighed down by a difficult economic climate. Nonetheless, the region's growth prospects for the July-September quarter are encouraging. According to PMI data, the manufacturing sector looks set to provide a stronger contribution to GDP than it did in the April-June quarter.
Slower increases in new business inflows have hindered firms' ability to recruit. The sector's labour market was squeezed in September as companies attempted to minimize operating costs. This bodes ill for the economy in the near-term and suggests that manufacturers’ expectations for future output growth are clouded with uncertainty.
Goods producers benefitted from a downswing in commodity prices. Input costs decreased for the second month running in September, a situation not seen since the financial crisis. This provided firms with more room for price negotiation and selling prices were lowered on average, improving manufacturers' competitiveness.''
