India: Private sector growth slows in August, but business expectations improve
September 5, 2019
The composite Purchasing Managers’ Index (PMI) produced by IHS Market decreased to 52.6 in August from 53.9 in July, which represented the highest reading since November 2018. Consequently, the PMI moved closer to the 50-point threshold that separates expansion from contraction in the private sector.
The services PMI fell to 52.4 in August from 53.8 in July. This was due to weaker output growth in the month, which was itself affected by a more modest increase in new business orders. Despite the slowdown in August, firms continued to hire new workers, although the hiring rate slowed slightly. The level of outstanding business rose in August, partly due to delayed client payments. In terms of prices, output price inflation accelerated in August, despite a softening of input price inflation. Meanwhile, firms became more confident about upcoming business activity in August, with confidence hitting a one-year high, partly on expectations of accommodative public policies.
On the manufacturing side, the PMI decreased to 51.4 in August from 52.5 in July. This was partly due to new business order growth slowing to a 15-month low, which fed into weaker output and job creation growth. In addition, factories lowered their input buying for the first time since May 2018 and at the fastest pace in over two years; consequently, holdings of raw materials and semi-finished goods declined and ended a 17-month period of accumulation. In addition, vendor performance improved in August, with average delivery times shortening for the fifth month running. In terms of prices, output charge inflation eased in August, despite accelerating input price inflation. Lastly, manufacturers were more confident about future business in August.
Commenting on both the PMI readings, Pollyanna de Lima, principal economist at IHS Markit, said: “Although the two surveys combined point to another round of job gains, a retreat in the rate of employment expansion highlight a wait-and-see approach among businesses who are longing for a meaningful and sustained pick-up in demand growth. An important development, however, is evident in a rebound in business sentiment. Both manufacturers and service providers believe that supportive public policies can help shift growth momentum into a higher gear in the coming 12 months.”
Author: Edward Gardner, Economist