Manufacturing output,new orders at 9-month low

HSBCs Purchasing Managers Index show tight capacity and monetary tightening is constraining growth.

Indicating that alls not well,the seasonally adjusted HSBC Purchasing Managers Index PMI a headline index designed to measure the overall health of the manufacturing sector posted a reading of 55.3 in June,down from Mays 57.5 to a 9-month low. While the latest strengthening of business conditions was weaker than the long-run trend,it was nonetheless marked,HSBC said.

An index reading above 50 indicates an overall increase in that variable,below 50 an overall decrease,it said.

New business received by manufacturers in India increased substantially during June,extending the sequence of sustained growth to twenty-seven months.

However,the latest expansion was the slowest seen during 2011. New export orders rose solidly,but the rate of increase was the weakest since Nov 2009,HSBC said.

Leif Eskesen,Chief Economist for India amp; ASEAN at HSBC said: The momentum in the manufacturing sector slowed in June as sequential growth in output and new orders decelerated further. Even with growth easing,tight capacity is still showing up in rising backlogs of work and a lengthening in supplier delivery times. On the inflation front,input costs accelerated,while output prices rose less fast. These numbers confirm that tight capacity and monetary tightening is constraining growth. However,inflation pressures are still firmly in place,calling for further policy rate hikes to anchor inflation expectations.

Reflective of the slowdown in overall new order growth,the latest rise in output was also lower than in the previous survey period. However,reports of labour shortages and power cuts impacted negatively on production. Subsequently,backlogs of work increased for a fifteenth successive month. While the latest accumulation eased since May,it was stronger than the historical average. A slight rise in finished goods stocks was indicated in June,although the majority of panellists noted no change in levels of post-production inventories,it said.

Despite pressure on operating capacity,employment in the Indian manufacturing sector fell in June. Anecdotal evidence suggested that this was reflective of a lack of available labour to fill positions as vacancies arose.

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A substantial increase in purchasing activity was recorded in June. However,the extent of the rise was weaker than in May as many companies commented that high raw material costs limited their purchasing power. Suppliers delivery times continued to lengthen,with anecdotal evidence suggesting that vendor performance was negatively impacted by higher levels of input buying,alongside shortages of materials,labour and power, it said.