After weak GDP data, manufacturing PMI dips in August

A day after gross domestic product (GDP) numbers showed a slower growth for manufacturing sector in first quarter compared to the previous quarter, Nikkei purchasing managers’ index (PMI) data showed that factory production expanded at a lower pace in August compared to July.

However, falling global commodity prices abated inflationary concerns, raising hopes of rate cuts by the Reserve Bank of India (RBI) this month. PMI fell to 52.3 points in August against six-month high of 52.7 in July. But barring July, the reading in August is still the highest in six months. PMI score above 50 points means expansion and the one below it shows contraction. The manufacturing sector has been expanding after October 2013.

Markit Economics, which compiles PMI data, says the number reflected weaker improvement in the health of the sector, attributing it to softer increase in output, orders and stock of purchases. The consumer goods sector outperformed the capital and intermediate levels in terms of output, orders and buying levels.

“This possibly showed that consumption demand could pick up in the coming months as benefits from lower inflation materialise,” said Rishi Shah, economist, Deloitte. In the GDP data released on Monday, growth in the manufacturing sector slowed to 7.2 per cent in the first quarter of the current financial year April-June against 8.4 per cent in the previous January-March quarter. Besides, core sector, which constitutes almost 38 per cent of the Index of Industrial Production (IIP), slowed to a three-month low of 1.1 per cent in July.

According to Markit Economics, growth of new orders moderated in August, reflecting weaker movements in both domestic and overseas demand. In the GDP data, growth in demand — as reflected by the private consumption expenditure — slowed to 7.3 per cent in the first quarter of the current financial year against 7.9 per cent in the previous quarter.

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