Nikkei India Manufacturing PMI rises to four month high of 51.8 in July 2016
The performance of India's manufacturing economy continued to improve in July, with a stronger expansion in new business contributing to faster increases in output and buying levels. Although some firms added to their workforces, overall job creation was negligible. Meanwhile, input cost inflation softened and while output prices were raised at the quickest pace in three months, the rate of charge inflation was only slight.Posting a four-month high of 51.8 in July (June: 51.7), the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' IndexTM (PMI) TM - a composite single-figure indicator of manufacturing performance - indicated a further improvement in overall business conditions across the sector. The upward movement in the headline index came from stronger contributions from four of its five components, the exception being suppliers' delivery times.
Supported by greater demand from both the domestic and external markets, total new business rose at the fastest pace since March. The expansion in order books was led by consumer goods producers. Growth of new export orders climbed to a six-month high, with increases seen in the consumer and capital goods categories.
Indian manufacturers stepped up production, with July's upturn being the most pronounced since March. The overall increase in output was led by consumer goods producers, although growth was also recorded in the intermediate goods category.
July data highlighted ongoing pressure on the capacity of Indian manufacturers, as outstanding business rose for the second month in succession. Furthermore, the rate of backlog accumulation was the fastest in one-and-a-half years.
Despite this, hiring trends remained relatively muted. Only 1% of surveyed companies took on additional workers in July, while almost all the remaining respondents signalled no change in payroll numbers.
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Underpinned by stronger growth of new orders, businesses purchased additional inputs for use in the production process. The rate of expansion climbed to an 11-month high. Subsequently, stocks of raw materials and semi-finished goods rose.
Conversely, holdings of finished goods declined in July, but to the least extent in six months. Some respondents commented on the fulfillment of orders from stocks.
On the price front, July saw input costs rise at the slowest pace in five months. Although charge inflation accelerated, the rate of increase was only slight and remained below its long-run average. Finally, supplier performance improved for the first time since February, albeit marginally.
Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit and author of the report, said: "India's manufacturing economy is reviving at the beginning of the second half of 2016 after the slowdown seen in the April-June quarter, as growth of both production and new orders continues to strengthen in July. Although output expanded at the fastest rate since March and backlog accumulation intensified, businesses refrained from creating jobs. The ongoing muted trend for employment indicates that companies remain somewhat uncertain regarding the sustainability of the upturn.
"Delving deeper into the data we see that the consumer goods sub-sector kept its place as the prime driver of the overall upturn. Although demand for plant and machinery improved, investment goods output dropped. Separately, the depreciation of the rupee supported Indian exporters as survey data pointed to the quickest rise in new business from abroad since January.
"Offering respite to firms, cost burdens rose at a modest and slower rate and the improving demand environment meant that businesses were able to raise their own charges in July. With inflation rates remaining lower than their respective long-run averages, it wouldn't be surprising to see the RBI loosening monetary policy at its August meeting in an effort to encourage investment."
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