India factory growth slowed to 3-month low in Jan, hiring near pause

A worker makes parts for household mixers inside a small-scale manufacturing unit in Mumbai
A worker makes parts for household mixers inside a small-scale manufacturing unit in Mumbai, India, August 1, 2016. REUTERS/Danish Siddiqui

BENGALURU, Feb 1 (Reuters) - India's manufacturing industry started the year on a weaker note, expanding at the slowest pace in three months in January as output and sales growth slackened, a private survey showed on Wednesday.

The Manufacturing Purchasing Managers' Index (INPMI=ECI), compiled by S&P Global, fell to 55.4 last month from 57.8 in December, well below the 57.4 predicted in a Reuters poll.

Still, it remained well above the 50-mark separating growth from contraction for a 19th straight month.

"Despite some loss of growth momentum, the sector looks set to at least remain in expansion mode as the final quarter of the current fiscal year draws to a close," Pollyanna De Lima, economics associate director at S&P Global, said in a news release.

"There was a mild resurgence in cost pressures, which manufacturers linked to higher prices for items like energy, metal and electronic components. The rate of cost inflation remained historically subdued, but companies nevertheless hiked their fees as demand resilience facilitated the passing on of additional cost burdens to clients."

Input costs rose marginally in January, but output price inflation dipped from a six-month high in December, suggesting price pressures may ease.

Indeed, the country's annual retail inflation fell to 5.72% in December, below the Reserve Bank of India's mandated range of 2-6% for a second consecutive month after staying above it nearly all of last year.

Growth in both output and new orders sub-indexes, which are indicators of demand strength, eased in January from December when output was at a 13-month high. Foreign demand continued to rise, although also at a slower pace.

"A key area of weakness seen in the latest PMI data was exports. Although manufacturers received new orders from international markets, the increase was slight at best and moderated considerably to a ten-month low," added De Lima.

The business expectations index, which measures optimism about the year ahead, sank to a six-month low and employment generation was barely above the 50-neutral mark, dropping to a level last seen in August.

These indicators could help sway the RBI's stance. It is expected to make a final interest rate hike of 25 basis points this month and to then focus on supporting economic growth which is seen slowing this year.

Reporting by Anant Chandak; Editing by Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.