India Manufacturing PMI falls to 52.8 in August

India’s manufacturing sector lost further momentum in August, with slower output and new orders dragging factory activity to its weakest level in five years. Employment also fell for the first time in two-and-a-half years, marking a broader slowdown in the sector.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index fell to 52.8 in August from 53.5 in July, moving below its long-run average of 54.2. The reading indicated the weakest improvement in the health of the manufacturing sector in five years. The slowdown was attributed to "the weaker upturn to challenging market conditions and subdued appetite for some products". Consumer goods, however, remained an exception.

Pranjul Bhandari, chief India economist at HSBC, said, "India's 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 added. The weaker pace of business was also reflected in hiring. Manufacturing employment contracted in August, ending two-and-a-half years of job growth. The decline was fractional, with companies that reduced payrolls citing lower overall operational requirements. "Employment edged into a mild contraction in August, the first decline after more than two years of job growth," Bhandari said. "While input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly."

Overseas orders lose momentum

Demand from overseas markets also softened during the month. Manufacturers continued to receive new export orders from Australia, Germany, mainland China, Spain, Thailand and the United States, but the overall increase in international sales was slower than in July. The moderation in incoming work came even as purchasing activity continued to expand. Manufacturers increased their purchasing for the sixty-second consecutive month, although the rate of expansion was the weakest recorded during this period. Inventory levels meanwhile moved higher. Finished goods stocks increased for the second consecutive month as sales slowed. The accumulation of pre-production stocks also continued, but its pace eased to the lowest level since April.

Cost pressures ease

Manufacturers faced lower overall input cost pressures in August despite continued increases in expenses related to steel and transportation. Input cost inflation fell to a six-month low. Selling price increases also became less pronounced. Output price inflation rose at its slowest rate in 45 months, with fewer than 7% of monitored firms increasing prices. Those companies raised selling prices to remain competitive and protect order volumes. Business confidence nevertheless strengthened during the month, reaching its highest level since May, although it remained subdued by historical standards. About 16% of surveyed companies expected production to increase over the next 12 months. All other firms expected their output levels to remain steady.