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Hint of sputter in economy’s engine: PMI droops

The overall PMI, after touching a high of 57.7 in May, has been dropping since then — to 56.8 in June and 55.8 in July.

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NEW DELHI: Could the industrial engine be slowing down just a smidgeon? ABN Amro’s monthly purchasing managers’ index (PMI) seems to indicate that, though the report insists that the expansion of the manufacturing sector is as robust as ever.

The overall PMI, after touching a high of 57.7 in May, has been dropping since then — to 56.8 in June and 55.8 in July. There has been a tapering off in all but three of the 11 sub-indices.

The PMI is a kind of leading indicator, which provides an indication of manufacturing sector activity, based on output, new orders, export orders and inventories, among other things.

Technically, though, any index above 50 - the no-change mark in the index —- indicates an expansion. However, the figures show a moderation in expansion since May, when the index touched an all-time high in its six-month existence.

The three sub-indices which showed growth are perhaps an indication that the slowdown in the index may be only temporary.

A higher backlog of work index, the report says, indicates an expansion of work in hand at their plants. The increase in the stocks of finished goods index is actually a sign of contraction of inventories, which indicates pressure to turn around new orders quickly. And a higher employment index shows increased staffing which is taken as a sign of efforts to raise production levels.

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