Econintersect: After a disastrous several months starting during the second quarter through the third quarter things are looking up for India’s economy. The PMI (Purchasing Manager’s Index) for November 2013 surged to 51.3, a reading last seen in April and the first reading since July above 50, the dividing line between contraction and expansion.
The rise in PMI was accompanied by an improvement in GDP growth for the third quarter to 4.8% yera-over-year, announced Friday. The growth rate remains below the 5% level which is considered to be the floor below which India faces severe economic problems and far below the 8% level that the government says is needed to provide jobs for its rapidly expanding youth population and to make inroads toward reducing poverty. However, the third quarter result is up significantly from the second quarter 4.4% and exceeded consensus estimates of 4.6% (Reuters).
Commenting on the India Manufacturing PMI™ survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said:
“Manufacturing activity picked up led by a rise in new domestic orders, which helped pull up output growth. Encouragingly, input and output price inflation eased, which, if sustained, could imply that the RBI is getting closer to the end of its tightening cycle, although it may still need to notch rates up a bit further.”
The press release from Markit:
Manufacturing operating conditions across India improved in November, with a return to growth of incoming new work leading companies to raise their production levels for the first time since April. Purchasing activity also rose in the latest month and job creation was sustained.
Adjusted for seasonal factors, the HSBC India Manufacturing Purchasing Managers’ Index™ (PMI™) climbed from 49.6 in the previous month to 51.3 in November. Although indicative of a slight improvement in operating conditions, this was the first reading above 50.0 recorded since July.
Boosting the PMI was a rebound in new orders and output. Manufacturing production rose for the first time in seven months during November, albeit moderately. Strengthened demand resulted in new order growth and, although modest, the rise in new work intakes ended a five-month period of contraction. Export business increased at a marginal and slower rate, suggesting that the domestic market was the main source of new order gains.
Sector data indicated that consumer goods continued to outperform the other two categories monitored by the survey, with both output and new orders rising at solid rates in the latest month.
After contracting in each of the past three months, purchasing activity rose in November. However, the overall rate of expansion was modest and weaker than the series average. By sector, the strongest increase was recorded at consumer goods, followed closely by intermediate goods.
Manufacturing employment increased for the second month running in November. That said, the pace of job creation remained marginal and weaker than its long-run average. The overall rise in staffing levels mainly reflected growth in the consumer goods sector.
There was evidence of capacity constraint at Indian manufacturers in November, as backlogs of work rose for the sixteenth consecutive month and at the fastest rate since July. Anecdotal evidence suggested that unfinished business rose in tandem with new order growth and power outages.
Inflationary pressures in the Indian manufacturing economy softened in November. The rate of charge inflation was slight and eased since the previous month, while purchase prices increased at the weakest pace since August. Input costs rose at weaker rates across all three monitored sub-sectors.
Stocks of purchases rose in November. The overall rate of expansion was moderate, but the most pronounced since June. Post-production inventories also increased, albeit marginally and at the weakest pace in the current three-month sequence of growth. Monitored firms indicated that, due to powercuts, existing orders had to be met directly through stocks.
Manufacturing economy returns to growth as output and new orders expand (Markit, HSBC Purchasing Managers’ Index™ Press Release, 02 December 2013)
India third quarter GDP growth stronger than expected (CNBC Business, 29 November 2013)
GDP grows better-than-expected 4.8 pct in Sept quarter (Rajesh Kumar Singh, Reuters, 29 November 2013)