Manufacturing Expansion Slows in August, Raising Demand Concerns for Businesses
New Delhi, Sep 1: India’s manufacturing sector continued to expand in August, but the pace of growth weakened considerably as softer demand led to slower increases in new orders and factory output, according to the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI).
The seasonally adjusted PMI declined to 52.8 in August from 53.5 in July, marking the third straight month of moderation and the weakest improvement in the sector’s overall health in five years. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.
The latest figures suggest that manufacturers are facing a more challenging demand environment. New orders continued to rise, but their growth was the slowest in five years, with companies pointing to difficult market conditions and weaker demand for some products.
Factory output also remained in positive territory, although the pace of expansion slowed sharply. The output index fell to its lowest level since August 2021, indicating that manufacturers are still increasing production but at a much slower rate.
The slowdown in demand has also influenced companies’ purchasing and inventory decisions. Businesses reduced the pace at which they bought inputs and built stocks, reflecting a more cautious approach to production planning.
Manufacturing employment declined for the first time in around two-and-a-half years, although the fall was marginal. Companies that reduced their workforce mainly cited lower business requirements.
Cost pressures, meanwhile, showed signs of easing. Manufacturers continued to face higher expenses for materials such as steel and for transportation, but the overall rise in input costs was moderate and the weakest in six months.
Lower cost pressures allowed companies to take a more measured approach to pricing. The increase in selling prices was modest, with output price inflation reaching its lowest level in 45 months and remaining below its long-term average.
Exports provided some support to the manufacturing sector during the month. International orders continued to increase, helped by demand from markets including Australia, Germany, mainland China, Spain, Thailand and the US. However, export growth also slowed compared with July.
The mixed performance highlights the challenges facing manufacturers. While export demand continues to provide opportunities, weaker domestic demand could encourage companies to remain cautious about inventory, hiring and capacity expansion.
Business confidence improved during August, reaching a three-month high. Around 16 per cent of companies surveyed expected their output to increase over the next 12 months, although overall confidence remained relatively subdued by historical standards.
For the wider economy, the moderation in manufacturing activity could affect industries linked to factory production, including raw-material suppliers, logistics providers, transportation companies and industrial services.
At the same time, easing input-cost pressures could provide some relief to manufacturers by supporting margins and allowing businesses to manage pricing more carefully.
The August PMI therefore presents a mixed picture for India’s industrial sector. Manufacturing remains in expansion territory, but the slower pace of new orders and output suggests that businesses are entering a period where demand conditions will be closely watched.
The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from purchasing managers at around 400 manufacturing companies. The survey covers indicators including new orders, output, employment, supplier delivery times and purchasing stocks.
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