India: The private sector expands at a faster pace in July as political clouds clear
August 5, 2019
The composite Purchasing Managers’ Index (PMI) produced by Nikkei and IHS Market rose to 53.9 in July from 50.8 in June, representing the highest reading since November 2018. Consequently, the PMI climbed further above the 50-point threshold that separates expansion from contraction in the private sector.
The services PMI rose to 53.8 in July, up from the 49.6 reading in June, which marked the first time the PMI fell below the 50-point threshold since May 2018. This was driven by the quickest increase in new output in one year and was partly linked by service companies to an expansionary government budget, which was unveiled on 5 July and contained a 13.3% increase in planned spending. Moreover, new orders increased at the fastest pace since October 2016, with new export orders particularly showing strength, rising at the quickest pace since September 2014. On the labor front, employment increased at the highest rate in nearly eight-and-a-half years in July, which helped unfinished business across the service sector increase at the slowest pace so far this calendar year. Cost inflation accelerated to a five-month high in July, although output inflation slowest to a five-month low. Businesses indicated improved optimism in July about operating conditions in the next 12 months, partly because public policy concerns waned.
On the manufacturing side, the PMI increased to 52.5 in July, up from 52.1 in June. Output increased at a faster pace in July than in June, buttressing the overall PMI reading. In addition, new orders rose at a faster pace in July, despite a slowdown in new export orders, which climbed at the slowest pace since April 2018. Responding to higher output, manufacturers hired new employees at a faster pace in July than in June, although additional inputs were purchased at a slower rate. Manufacturing businesses’ outstanding work increased for the first time in three months in July. In terms of inventories, input stocks grew in July, while output inventories decreased. On the price front, input cost inflation slowed to a three-month low in July, while output costs rebounded after decreasing in the previous two months. Looking ahead, manufacturers’ confidence about business in the year ahead improved to a four-month high.
Author: Edward Gardner, Economist