Economy

Factory output PMI drops to 52.3 in July, represents 12th successive month of expansion

Shishir Sinha | | Updated on: Aug 01, 2018
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Factory production slowed down a bit in July as the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) posted 52.3 in July, down from 53.1 in June. Still, it is the 12th consecutive month of expansion.

This index is based on the survey conducted among purchasing executives in over 400 companies. These companies are divided into eight broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. An index over 50 shows expansion, while one below 50 stands for a contraction. The index is prepared by IHS Markit and released along with a detailed report.

Aashna Dodhia, Economist at IHS Markit, said the recent improvement in Indian manufacturing conditions lost some impetus in July, with softer rises in output, new orders and employment. However, “we must not lose sight of the fact that the sector continued on a steady expansionary path, as production and new business rose at marked rates. Moreover, July survey data pointed to strong demand from both domestic and international sources, she said while adding that it will be reassuring for policy makers to see input cost inflation easing from June’s near four-year high to a level more in line with the series trend.

According to the report, manufacturing conditions across India improved at a modest and slower pace at the start of the quarter, reflecting softer rises in output, new orders and employment. On the price front, input cost inflation eased from June’s multi-year high and was broadly in line with the series trend. Subsequently, firms raised their output charges at a modest and slower pace. Meanwhile, business sentiment towards the 12-month outlook for output strengthened to a three-month high. Despite easing from June’s six-month high, the latest upturn was marked and stronger than the current sequence of growth. Anecdotal evidence pointed to favourable market conditions.

The report also mentioned that Indian manufacturing companies faced higher input costs during July, thereby stretching the current period of inflation to 34 months. The rate of increase eased from June’s near four-year high and was in line with the series trend.

Survey respondents mentioned that steel and crude oil were among the key items that increased in price. “Looking ahead, Indian manufacturing companies held optimistic projections for output in the next 12 months. Expected improvements in demand, promotional activities and expansion plans were the key factors behind confidence. The level of positive sentiment strengthened to a three-month high during July, but remained below the historical average,” it said.

 

Published on August 01, 2018

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