Source: Markit Economics

China's manufacturing grew at at robust pace in October while India's growth was more moderate as activity eased, reflecting weaker expansions of manufacturing and services output.

China's PMI hits eighteen-month high; Strong growth of output and new orders accompanied by survey record increase in employment

The headline HSBC China Manufacturing PMI (Purchasing Managers' Index) rose to 55.4 in October, from 55.0 in the previous month, signalling that growth of the Chinese manufacturing sector was maintained at the start of Q4. Data indicated that operating conditions in the sector improved at the sharpest rate for eighteen months.

Output in the Chinese manufacturing sector continued to rise in October, extending the current period of expansion to seven months. Production growth remained strong, despite easing to the weakest for three months. Those survey participants that reported a rise in output frequently linked this to greater inflows of new business.

Levels of new business placed at Chinese manufacturers rose again in October. Although growth of new work remained substantial, it was the slowest for three months. New order volumes have now risen in each of the past seven months. Where an increase in sales was signalled, respondents widely attributed this to new product developments and improved demand from both domestic and external sources. Foreign order levels rose for the fifth month running in October, increasing at the strongest rate since June 2007. Anecdotal evidence suggested that firmer demand from abroad, with North America mentioned in particular, had pushed export sales higher.

Manufacturing employment in China increased for the fifth successive month in October. Job creation was the strongest since the start of the series in April 2004 as substantial gains in new business continued to encourage companies to hire additional workers.

Output prices set by manufacturers rose for the fourth consecutive month in October. However, the rate of inflation was the weakest in that sequence. Of those respondents that reported a rise in factory gate prices, many linked this to rising input costs. Meanwhile, competitive pressures continued to restrict the ability of some firms to raise their prices charged.

Average input costs faced by Chinese manufacturers rose at the weakest rate in the current four-month period of inflation. Panellists cited that rising demand on global commodity markets continued to generate marked inflationary pressure. Coal, cotton, crude oil and steel were all reported to have risen in price during October.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist for China at HSBC said: “The HSBC China Manufacturing PMI climbed to 55.4 in October, the highest level since April 2008, which is attributable to the sustained expansion in new orders and output, as well as rising employment. The New Export Orders Index remained above the neutral 50.0 threshold for the fifth consecutive month, implying that further improvements in exports have strengthened industrial sectors. We believe the ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in 4Q09.”

The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies.

Source: Markit Economics

India's manufacturing activity growth eased, reflecting weaker expansions of manufacturing and services output

The recovery of India’s manufacturing economy continued on a relatively steady footing during October. Output and new orders rose at substantial rates, albeit less sharply than in September. Meanwhile, buying activity grew at an accelerated pace and employment expanded for the first time in four months.

At 54.5 in October, the seasonally adjusted HSBC Markit PMI, was only fractionally lower than in September (55.0). The latest reading pointed to another strong improvement in the health of the industry.

Indian manufacturing output expanded for the seventh consecutive month in October, and at a rapid pace. Improved production efficiency and greater new order volumes supported the latest increase, according to panellist accounts.

New work placed with Indian manufacturers grew markedly at the start of the fourth quarter, which firms commonly linked to a better economic situation. Other reasons for the rise included successful advertising campaigns, good reputations and company expansions. New business stemmed from both domestic and export markets, with foreign sales improving at the fastest rate since August last year. Even so, the home market remained the principal driver of growth.

Manufacturers took advantage of demand conditions in October, raising their charges for the second straight month. However, output price inflation slowed to only a marginal pace, reflective of ongoing competitive pressures. Meanwhile, input price inflation remained marked, despite easing from September’s three-year high. Respondents blamed greater purchasing costs on more expensive raw materials.

Employment at Indian manufacturers expanded during October. Survey participants stated that personnel were taken on to accommodate higher production requirements. However, the rate of job creation was only marginal and below the long-run series trend.

Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said: “The PMI, which led the upturn in the industrial cycle, has gone essentially no-where over the last 6 months. It is, however, consistent with robust growth in industrial production of around 8-10% on an annual basis.

“If falls in the output and total new orders indices were a touch disappointing, a rise in the employment index back above 50.0 and a decent improvement in the new export orders index to its highest level since August last year offered welcome news. It may be that domestic new order growth is beginning to suffer from the impact of the drought, but at least stronger foreign demand is helping to cushion the blow.

“Also helpful, from a policy perspective at least, were falls in both input and output prices indices. Although early days, the latter looks to have a decent relationship with wholesale price inflation and might help calm what are clearly extremely frayed nerves at the Reserve Bank of India.”

The HSBC India Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 420 manufacturing companies.