Softer rise in manufacturing output slows flash PMI to 60.5 in August

Pace of expansion remains sharp and indicates strong demand and favourable market conditions, HSBC survey

India's private sector expanded at a slower clip in August due to a softer rise in manufacturing output and weakening of new orders, according to a survey.

HSBC's flash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, declined to 60.5 in August from last month's figure of 60.7. The index, which measures the month-on-month change in the combined output of India's manufacturing and service sectors, was however inside growth territory for the 37th consecutive month.

"[The data] highlights a sharp upturn in new business intakes, solid job creation and upbeat expectations towards growth prospects. On the price front, there were softer increases in both input costs and selling prices.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," according to the survey.

India's flash composite PMI slipped slightly in August but it remained significantly higher than the historical average, said Pranjul Bhandari, chief India economist at HSBC, noting that manufacturing experienced a softer rise in output while services firms saw a slightly quicker expansion in business activity.

"Although new order growth for the manufacturing sector slowed to the weakest since February, the pace of expansion remained sharp, indicating continued strong demand and favourable market conditions," she said.

Services companies saw a stronger upturn in international sales than manufacturing. At the composite level, new export orders rose at a pace weakest since April, though nevertheless the quickest since the PMI series started a decade ago.

There were signs of capacity pressures on private sector companies — evidenced by a further increase in backlogs — but trends diverged at the sub-sector level. Goods producers reported the first decline in outstanding business volumes in just under a year, while service providers indicated a 37th consecutive monthly rise. The pace of accumulation was mild among the latter, and the weakest since February.

"One factor that supported the clearing of backlogs at manufacturers was another round of job creation. Moreover, the pace of employment growth was marked and broadly similar to July. Payroll numbers also rose solidly in the service economy, supporting a twenty-seventh successive month of expansion at the composite level," the survey noted.

The flash PMI records 75-85 per cent of 800 PMI survey responses by services and manufacturing firms received each month.

The final manufacturing PMI headline figure for August will be released on September 2 and is projected to remain at 57.9 The services and composite PMI will be released on September