Manufacturing PMI Inches up

India’s manufacturing activity contracted for the second month in a row in September but the extent of contraction was less than in the previous month.
The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) rose to 49.6 in September from 48.5 in August. A reading of 50 separates growth from contraction. The survey-based index, compiled by Markit, is designed to measure the overall health of the manufacturing sector.
Output and new orders contracted, but at a slower pace than in August, forcing companies to cut back on employees for the first time since February 2012.
A bright spot in the data, however, was a pick up in capital goods segment, an indicator of investment activity. This suggests that the strong 15.6% rise in production of capital goods in July, shown by the Index of Industrial Production (IIP), could sustain in the coming months. The IIP data for August will be released on October 11.
But overall, the PMI has not been a good indicator of manufacturing activity gauged by the official IIP. The PMI showed manufacturing activity fell to its lowest in over four years in August, but core sector data released on Monday suggested a rise in manufacturing growth from 3% in July.
The output of eight core industries, which have a 38% weight in IIP, rose at its fastest pace in seven months in August.
The latest PMI survey showed contraction of exports business accelerated to its quickest in two years. This slump is contrary to the double-digit growth recorded in July and August.
Partly, the deviation can be explained by the fact that industrial growth is calculated year-on-year, whereas the survey-based PMI measures activity with reference to the previous month.