Expansion mode. Manufacturing activity records strong growth in October: survey

The manufacturing sector in India showed strong growth in October as the Purchasing Managers’ Index (PMI) moved to 55.3 in October, as against 55.1 in September. Importantly, this was accompanied by a good rise in employment.

PMI is prepared by S&P Global and released in advance to Government data. The latest number is above its long-run average (53.7) and indicates a strong improvement in the health of the sector. “The upward movement in the headline figure largely reflected strong,” S&P Global said.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said the Indian manufacturing industry again showed signs of resilience in October, with factory orders and production rising strongly despite losing growth momentum.

“Manufacturers continued to loosen the purse strings as they expect demand buoyancy to be sustained in the coming months. There was a marked rise in input purchasing, with firms adding to their inventories to better align with client purchasing. Capacities were again expanded to accommodate improving sales,” she said.

Manufacturing employment increased at a rate that was one of the strongest since data collection started in March 2005. The latest PMI results indicate that economic growth in the manufacturing industry remained robust, and price pressures were contained. October data showed historically marked expansions in factory orders and quantities of purchases, while production growth outpaced its long-run average despite softening to a four-month low.

De Lima said the Future Output Index component indicated robust business optimism towards the year-ahead outlook. “Consumer goods was the best-performing category in October, recording the greatest performances for output, total sales and exports. Growth for all of the aforementioned areas were sustained in the intermediate and investment goods sub-sectors, albeit with slowdowns since September,” she said.

The report accompanying PMI highlighted that firms were again able to secure additional work in October, taking the current sequence of growth to 16 months. Overall, factory orders increased at an above-trend pace that was nonetheless the weakest since June. New export orders also rose markedly, with the pace of expansion ticking higher. Production, likewise, expanded at a slower rate at the start of the third fiscal quarter, the slowest since June, albeit one that surpassed its long-run average.

Growth was linked to ongoing improvements in demand and enhanced technology. Indian manufacturing companies bought additional inputs in October, amid efforts to rebuild stocks and fulfil greater sales. Overall, input buying rose solidly, but at the slowest pace in 14 months, the agency added.

Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.