India's manufacturing sector experienced slower growth for the second consecutive month in May, yet remained firmly in expansion mode, according to a monthly survey released on Monday. Global sales surged to their highest level in over 13 years.
The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) decreased from 58.8 in April to 57.5 in May, indicating a slower but significant improvement in the sector's health. The index had reached a 16-year high of 59.1 in March. In PMI terminology, a reading above 50 signifies expansion, while a score below 50 indicates contraction.
"The manufacturing sector remained in expansionary territory in May, albeit the pace slowed, led by a softer rise in new orders and output," said HSBC Global Economist Maitreyi Das. The slowdown was attributed to reduced working hours amid an intensive heatwave and rising production costs.
"Panelists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes," Das added. The headline figure was nearly four points higher than its long-term average.
May data indicated further growth in Indian factory production, extending the current expansion streak to nearly three years. Despite easing to a three-month low, the rate of increase remained strong. Growth was bolstered by new business gains, robust demand, and successful marketing efforts, according to the report.
New orders increased at a substantial rate, though it was the slowest in three months. This rise was linked to marketing efforts, strong demand, and favourable economic conditions. However, competition and election-related disruptions stymied growth. In contrast to total sales trends, new export orders rose at a faster pace in May.
International sales saw the strongest upturn in over 13 years, with manufacturers reporting gains from customers across Africa, Asia, the Americas, Europe, and the Middle East. The sustained strong sales performances, combined with positive growth forecasts, spurred job creation in May.
Manufacturing employment rose to one of the highest levels since data collection began in March 2005. However, job growth, alongside rising material and freight costs, led to a quicker increase in input costs for manufacturers.
"On the price front, higher raw material and freight costs led to a rise in input prices. Manufacturers were only able to pass on part of this increase to consumers, resulting in a squeeze in manufacturing margins," Das noted.
"The positive news is that May recorded the highest level of positive sentiment among manufacturing firms in just under a decade, resulting in increased job creation," Das added.
The HSBC India Manufacturing PMI, compiled by S&P Global, is based on responses to questionnaires sent to purchasing managers at around 400 manufacturers.
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