Manufacturing output growth softens; outstanding business volumes drop for first time in 11 months

Private sector activity levels likely eased for the second successive month this August, with new factory orders rising at the slowest pace since February and goods prices being raised at the highest rate in 11 years, as per initial indicators from a private survey of purchasing managers.

The HSBC Flash India Composite* Output Index, a seasonally adjusted index that measures the month-on-month change in the combined output of India’s manufacturing and service sectors – stood at 60.5 in August, easing from 60.7 in July.

A reading of over 50 on the survey-based Purchasing Managers’ index (PMI), conducted by S&P Global among 400 firms from the manufacturing and services sectors, indicates an uptick in activity levels. The Flash PMI scores for an ongoing month are based on responses from about 75% to 85% of those 800 firms surveyed for the PMI.

The HSBC Flash India Manufacturing PMI, that factors in measures of new orders, output, employment, supplier delivery times and stocks of purchases, slipped from 58.1 in July to a three-month low of 57.9 in August. By contrast, the Flash India Services PMI Business Activity Index inched up to 60.4 this month from 60.3 in July.

“There was a softer increase in manufacturing industry output and a fractionally stronger rise in activity across the service economy. Yet, the former led the upturn,” S&P Global noted.

“However, manufacturing firms reported the first decline in outstanding business volumes in eleven months, while service providers indicated another monthly rise. Overall, firms remain optimistic, although the level of business confidence moderated due to concerns over inflation and competition,” remarked Pranjul Bhandari, chief India economist at HSBC.

After a sharp rise in recent months, input costs are rising yet again in August, with surveyed firms reporting higher costs on building maintenance, food, labour and raw materials like iron and rubber. Yet, the overall rate of inflation in inputs dropped to a six-month low, with similar trends for both manufacturing and services firms.

Job creation continued at almost the same pace as July, with a quicker uptick reported by services firms. Charge inflation climbed to a near 11-year high at goods producers, whilst softening at service providers.