Manufacturing expansion slows to five-year low in August
India's manufacturing sector continued to expand in August, but at its slowest pace in five years, as softer demand conditions weighed on new orders and employment, according to HSBC India Manufacturing PMI data released on Tuesday.
The seasonally adjusted index declined from 53.5 in July to 52.8 in August, indicating the weakest improvement in the health of the sector for five years. In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.
Pranjul Bhandari, chief India economist at HSBC, said the final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month. "The output index fell to its lowest level since August 2021, signalling that production is still expanding but at a markedly slower pace," she said.
Softer demand and first employment decline in two-and-a-half years
Firms reported softer demand conditions, which led to weaker increases in buying levels and stocks, as well as a mild decline in employment. New orders continued to grow, though at their weakest pace in five years. Survey respondents linked the slower expansion to difficult market conditions and softer demand for certain products.
Manufacturing employment fell for the first time in two-and-a-half years in August, though the rate of decline was only fractional. Companies that reduced staffing levels mainly cited lower business requirements. "Employment edged into a mild contraction in August, the first decline after more than two years of job growth," Bhandari noted.
Demand trends softened across two of the three industrial groups tracked by the survey, with consumer goods being the exception.
Export orders rise, but growth eases
Despite the softer domestic performance, export sales continued to climb, driven by demand from markets including Australia, Germany, mainland China, Spain, Thailand and the US. Growth of international orders, however, eased from July.
Production volumes at Indian manufacturers continued to rise strongly in August, the survey showed.
Cost pressures ease, price hikes limited
Input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly. Hikes to selling charges were confined to fewer than 7 per cent of panellists, as cost pressures faded and several companies sought to protect order books. The overall rate of input cost inflation was moderate and the weakest for six months, while output price inflation rose only marginally, hitting a 45-month low.
Business confidence rises but remains subdued
Business expectations strengthened in August, reaching their highest mark since May, though remaining subdued by historical standards. Around 16 per cent of survey participants forecast higher output over the coming 12 months, while the remainder expect no change from present levels.
Stocks of finished goods increased for the second month running, with companies linking the accumulation to lower-than-expected sales.
Outlook
The August data paints a picture of a manufacturing sector still expanding, but with momentum clearly cooling. The slowdown in new orders and the first employment decline in over two years suggest that demand conditions have softened. However, the easing of cost pressures and continued export growth provide some support. The coming months will show whether the current soft patch deepens or stabilises.