The Indian manufacturing sector suffered its first contraction during November since April 2005 with levels of production and incoming new orders both down sharply, according to the latest data from ABN Amro.

The headline ABN Amro Purchasing Managers’ Index (PMI — a seasonally adjusted index designed to gauge underlying sector conditions — plunged to a record low of 45.8. This is the first occasion in the history of the survey that the PMI has fallen below the neutral 50.0 mark.

A reading of the PMI below 50.0 indicates that the manufacturing economy is generally declining; above 50.0, that it is generally expanding. A reading of 50.0 signals no change. “The greater the divergence from 50.0, the greater the rate of change signalled by the index. The indicator is derived from individual diffusion indices which measure changes in output, new orders, employment, suppliers’ delivery times and stocks of goods purchased,” it said.

A significant reversal in the strength of the domestic market was the principal factor underlying the weaker performance of manufacturing, as tighter credit conditions and the onset of the global economic downturn hit confidence and reduced clients’ willingness to commit to new spending. “The decline in output was the first since data collection began in April 2005, and over a quarter of the survey panel reported a reduction,” ABN Amro said.

On the prices front, the latest data signalled that average input costs and output prices had fallen for the first time in their respective series histories in November.

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