Wednesday, July 4, 2012

>HSBC Purchasing Managers’ Index™ (PMI™) as on July 2, 2012

June data signals continued inflationary pressures in India manufacturing sector

The seasonally adjusted HSBC Purchasing Managers’ Index™ (PMI™) – a headline index designed to measure the overall health of the manufacturing sector – posted 55.0 in June, little-changed from the reading of 54.8 in May, hence signalling a further marked improvement of business conditions in the sector.

Firms indicated that product quality improvement combined with stronger demand contributed to higher levels of new orders. As a consequence, output expanded again in June, extending the current expansionary period to three years and three months. New export orders increased moderately at manufacturing firms.

Output prices increased as manufacturers attempted to pass further rises in the cost of inputs on to their clients. Moreover, firms in India reported that charges also increased in line with more expensive labour costs.

Input prices continued to increase, extending the inflationary period to 39 successive months. The rate of inflation in June was sharp and the largest since August 2011.
Manufacturers experienced a further expansion in staffing levels. Workforces increased slightly to accommodate higher levels of output.

Companies intentionally increased post-production inventories in line with stronger demand. 
Stocks of finished goods have now expanded throughout the past eight months.
Firms accumulated stocks of purchases intentionally according to expected increases in demand.

Lead times shortened moderately in the Indian manufacturing sector. Panellists stated that suppliers had been able to meet requirements for faster deliveries.
Outstanding business increased marginally in June, extending the period of accumulation to nine months. Powercuts were reported by firms as one of the main factors leading to growing levels of outstanding business.

Manufacturers increased their levels of input buying in June. Although the rate of increase was substantial, it was the lowest in the year so far.

Commenting on the India Manufacturing PMI™ survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said:

"Activity in the manufacturing sector kept up the pace in June with output, and employment expanding at a faster pace. The latter helped slow the pace of growth in backlogs of work. New order growth decelerated slightly led by export orders while stock levels rose, suggesting a slight moderation in output growth going ahead. Input and output prices rose at a faster pace than in May, keeping inflation high by historical standards. In light of these numbers, the RBI does not have a strong case for further rate cuts, which could add to lingering inflation risks."

Key points
􀂄 PMI at 55.0 indicates further improvement in health of manufacturing economy
􀂄 Production expands sharply in June
􀂄 Largest month-on-month increase in input prices since August 2011

Historical Overview