IIP Feb data may show mfg slump

That the slowdown in the manufacturing sector is not an aberration will be further evidenced in the February data of the Index of Industrial Production (IIP) as the output increase rate and new orders have been weakest in the last six months, according to findings based on the India Purchasing Managers' Index (PMI) by ABN Amro and NTC Research.

The index is a seasonally adjusted composite indicator designed to provide a single-figure snapshot of the performance of the Indian manufacturing sector.

The PMI is derived from individual diffusion indices that measure changes in output, new orders, employment, suppliers' delivery time and stocks of goods purchased.

The PMI for February stood at 59.5 compared with 60.7 in January. The figure was 61.9 in December 2007, 60.9 in November 2007, 61.7 in September 2007 and 59.3 in September 2007. A PMI below 50 indicates a decline in manufacturing activity. 
 

ABN AMRO PURCHASING MANAGERS' INDEX (PMI®) (seasonally adjusted, 50 = no change on previous month)
	PMI	Output	New orders	Export	Backlogs of  work	Finished goods	Employ- ment	Output Prices	Input
Sep-07	59.3	62.8	66.6	56.6	51.7	51.6	50.7	53.3	56.8
Oct-07	61.7	66.6	70.9	61.0	52.3	52.2	51.6	55.0	54.1
Nov-07	60.9	64.9	70.1	59.1	51.8	50.2	51.8	54.1	54.3
Dec-07	61.9	65.3	72.1	57.6	50.8	51.4	52.2	53.7	54.2
Jan-08	60.7	63.7	70.0	56.2	50.3	51.1	52.5	52.9	53.3
Feb-08	59.5	62.2	68.4	55.7	50.6	51.3	51.9	54.2	57.5

Though manufacturers raised production in February, evidence shows this growth came on the back of new orders.

The volume of the total new business increased with the new order index going up 68.4 per cent in February, bolstered by favourable market conditions and increased marketing activities.

Though new orders from abroad increased (exports orders index up 55.7 per cent), domestic demand was the main driver of growth. Unfinished work continued to accumulate in February. Companies linked the increase in backlog to strong sales.

The manufacturing sector continued to add their workforce in February, though employment growth was weakest in three months.

Stocks of finished goods also increased. There were reports of dispatch delays and higher production levels contributing to the rise in inventories.

Average vendor performance improved for the first time in six months in February, albeit negligibly. Subjective evidence suggested that improved stock conditions at suppliers had contributed to the shorter delivery time.

Input price inflation accelerated sharply in February and was the strongest in six months. There were reports of higher prices for a range of inputs, including metals, plastics and chemicals. Manufacturers raised factory gate prices again in February with average charge inflation picking up from the previous month.