India's manufacturing sector lost momentum in July, expanding at its slowest pace in nearly five years as weaker domestic demand weighed on new orders and companies turned more cautious on hiring, according to a private survey released on Monday.
The S&P Global HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 53.5 in July from 54.2 in June, marking its lowest reading since August 2021. The reading also came in below the flash estimate of 53.9. A PMI reading above 50 indicates expansion in business activity, but the latest data suggests growth in the sector is continuing at a slower pace.
‘New orders lagging amid fall in demand’
The survey showed that new orders, a key indicator of demand, grew at the second-slowest pace in more than four years. Manufacturers cited subdued market conditions and weaker customer interest as the main reasons for softer sales growth.
While domestic demand remained under pressure, export orders offered some relief. Overseas sales expanded at their fastest pace since April, although growth remained modest after plunging to a 39-month low in June.
Production levels continued to increase in July at a pace broadly similar to the previous month. However, performance varied across segments. Consumer goods manufacturers experienced weaker conditions, while producers of intermediate and capital goods reported relatively stronger growth.
Pace of hiring weakest in July
The survey also pointed to a cooling labour market. Manufacturers increased employment for the 29th consecutive month, but the pace of hiring was the weakest during the entire streak, signalling that firms are becoming more cautious amid softer demand. The slowdown in job creation adds to signs that the manufacturing sector is losing momentum after a prolonged period of robust expansion.
Input cost inflation eases to lowest in five months
Inflationary pressures moderated further in July. Input cost inflation eased to a five-month low, helped by softer price increases for raw materials, although firms continued to report higher transportation costs. Manufacturers also remained restrained in passing higher costs on to customers. Selling prices rose only modestly, at a pace broadly unchanged from June, indicating competitive pressures and subdued demand continued to limit pricing power.
Manufacturers optimistic
Despite the softer headline reading, manufacturers turned slightly more optimistic about the outlook. Business confidence improved from June’s recent low as firms expressed optimism that stronger demand conditions and ongoing infrastructure projects would support production and sales in the months ahead.
The latest survey suggests India's manufacturing sector continues to expand but at a noticeably slower pace with weak domestic demand and slowing employment growth emerging as key challenges even as easing cost pressures and improving business sentiment provide some support for the outlook.
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