India: The private sector grows in October, although companies turn less optimistic about the future
November 5, 2018
The composite Purchasing Managers’ Index (PMI) produced by Nikkei and IHS Market rose to 53.0 in October from 51.6 in September. This represents the highest reading since July and is above the 50-point threshold that separates expansion from contraction in the private sector.
The services PMI rose to 52.2 in October from 50.9 in September. This was largely due the fastest increase in new business since July. Favorable market conditions, larger client bases and successful advertising campaigns were all reported to support business inflows. Service companies expanded their payrolls at a fast rate in October, spurred by greater business inflows. Despite this, backlogs of works mounted and hit the highest level recorded since April. On the back of higher labor costs and costlier food and fuel, companies reported continued cost inflation in October, although slightly less than in September. Similarly, output price inflation cooled in October. In terms of the 12-month outlook, business sentiment in the services sector remained in positive territory in October, although it fell compared to September and reached a 20-month low.
The manufacturing PMI increase to 53.1 in October from 52.2 in September. Output rose strongly, partly due to improvements in demand—which spurred new business orders in October—and technological advancements. Higher output was most evident in the consumer, intermediate and investment goods sub-sectors. Manufacturers expanded their employee base in October at the fastest pace since last December. This helped reduce backlogs of work for the second month running. To help achieve higher production levels, companies also increased quantities of input purchases, which in turn increased pre-production inventory levels. Post-production inventories fell, however. In terms of prices, costlier chemicals, energy and metals underpinned input price inflation in October. Part of this inflation was passed on to consumers, although selling price inflation was comparatively milder. Looking ahead, business sentiment in the manufacturing sector looking at the coming 12-month period decreased to a 20-month low in October.
Author: Edward Gardner, Economist