India new orders, output slow to five-year low

Its August PMI stood below its long-run average of 54.2.

India's manufacturing sector kept expanding in August, but momentum ebbed sharply, with output and new orders both growing at their weakest pace in five years, according to the latest HSBC India Manufacturing PMI, compiled by S&P Global.

The seasonally adjusted headline index fell to 52.8 from 53.5 in July, marking the softest improvement in factory conditions in five years and sitting below its long-run average of 54.2.

Demand cooled across two of the three industrial categories tracked, with consumer goods bucking the trend. New business still rose at a marked rate, but the slowest in five years, as firms pointed to tougher market conditions and weaker appetite for some products. Export orders continued to climb, with fresh business from Australia, Germany, mainland China, Spain, Thailand and the US, though the pace of growth eased from July.

Output also grew more slowly, cooling to its weakest rate since August 2021 as manufacturers scaled back production in step with softer demand.

The slowdown fed through to the jobs market, where employment fell for the first time in two-and-a-half years, albeit only marginally, with firms citing reduced business needs. Purchasing activity kept rising, extending an unbroken 62-month run of growth, but at its weakest pace over that period as some manufacturers restocked while others pared back buying.

Stocks of finished goods rose for a second consecutive month, as firms found themselves with more unsold goods than expected, though the build-up was milder than in July. Pre-production inventories also grew again, helped by shorter delivery times from suppliers, though at the slackest pace since April.

Cost pressures eased meaningfully. Although manufacturers continued to face higher prices for materials such as steel, along with higher transport costs, overall input cost inflation was moderate and the weakest in six months. That, in turn, allowed firms to keep a lid on their own prices, with output charges rising at their slowest rate in 45 months and below the long-run trend.

Despite the weaker headline performance, business confidence improved. Around 16% of firms surveyed expect higher output over the coming year, whilst the rest anticipate no change, lifting sentiment to its highest level since May, though it remains subdued by historical standards.

Pranjul Bhandari, chief India economist at HSBC, said the PMI's slide to 52.8 marked a third straight monthly decline, with output growth at its weakest since August 2021 and employment dipping into contraction for the first time in more than two years, even as easing input costs allowed firms to raise selling prices only modestly.