Manufacturing PMI eases to 52.3 in July as new orders, output rise

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Despite completing 12 straight months of expansion, growth in manufacturing activity hit a speed bump in July as both new orders and output rose at a slower pace, according to the widely-tracked purchasing managers’ index (PMI).

The PMI in July went down to 52.3 from 53.1 in June. A reading above 50 shows expansion in the sector. Although modest, the latest improvement in the health of the sector was the second-strongest (behind June) in 2018.
Overall, manufacturing conditions improved for the 12th consecutive month in July, the PMI report said.

The slight slowdown in growth came after manufacturing touched a six-month high in June owing to sharpest gains in output and buoyancy in new orders in 2018.

But the rate of output growth fell in July because both new domestic orders and export contracts from abroad rose at a slower pace.

This happened even as new orders saw an overall rise for the ninth consecutive month. Respondents to the PMI survey continued to stress that demand for Indian products in key international markets remained strong.
Reflecting sustained growth, firms continued to raise staff levels for the fourth consecutive month in July, even as staff recruitment slowed to a marginal pace. At the market group level, growth in jobs was evident in the intermediate and investment goods sub-sectors.
Increased production requirements also prompted firms to engage in input buying for the second consecutive month during July.

That said, the rate of growth remained modest. Meanwhile, manufacturing companies raised their pre-production inventories during July, albeit only marginally.

“Business sentiment strengthened to a three-month high, but remained below the historical average as some respondents expressed fears of a potential slowdown in the year ahead. Indeed, IHS Markit recently downgraded its forecast of real GDP growth to 7.1% in (FY) 2018, reflecting rising headwinds to expansion, including high oil prices, large capital outflows from emerging markets, and tighter domestic monetary policy.” Aashna Dodhia, author of the PMI report, said.
On the price side, Indian manufacturers continued to face higher input costs in July, thereby extending the current period of inflation to 34 months. 

“However, the rate of increase eased from June’s near four-year high and was in line with the series trend,” the report pointed out. Consequently, firms raised their selling price in a bid to survive in a tough market.

China, with which India is often compared, hit a bump in its manufacturing performance in July. Growth in China’s factory sector hit an eight-month low as export orders came under stress owing to China's continuing trade war with the United States. Chinese firms have cut output, fearing industrial risks as a result of slower orders and high corporate debt.
The outlook for the Indian manufacturing sector now remains shadowed after the Reserve Bank of India opted for a tighter monetary stance on Wednesday. The central bank hiked the repo rate by 25 basis points for the second time in a row as consumer price inflation has hardened to 5 per cent in June.
Experts feel this may have some impact on gross domestic product (GDP) figures for the Q1 of FY19 even as there is no one-to-one correspondence between the PMI and official figures. 

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