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. Last Updated: 07/27/2016

Manufacturers Post Smallest Contraction in 11 Months

The manufacturing industry contracted last month at the slowest pace in 11 months as new business and output grew simultaneously for the first time since September, VTB Capital said Tuesday.

VTB’s Purchasing Managers’ Index advanced to 49.6 in August from 48.4 in the previous month, the bank said. A reading below 50 signals a contraction. The bank surveyed 300 purchasing executives.

“Modest production growth was supported by a second successive monthly increase in new orders, which reflected stronger market activity, particularly at home,” the report said. At the same time, “excess resources remained a key feature,” with “employment, backlogs and inventories all continuing to fall.”

Industrial output in July expanded 4.7 percent from the previous month, manufacturing grew 4.9 percent and mining and quarrying rose 5 percent, the biggest monthly gain since March.

While the index has continued to rebound from December’s record drop of 33.8, the current slump is more protracted than the downturn seen in 1998, when the Russian government defaulted on $40 billion of debt and devalued the ruble.  

The rate at which companies cut jobs remained “marked” and high oil prices pushed their input costs to an 11-month high, the report said.

That was a “worrisome” trend, VTB Capital economist Dmitry Fedotkin said in the report.

“It puts pressure on the struggling manufacturing sector which, due to high competition and weak demand, cannot pass on costs to end-consumers,” he said.

The PMI is derived from indexes that measure changes in output, orders, employment, suppliers’ delivery times and stocks, according to VTB.