Source: Markit Economics

China's manufacturing PMI (Purchasing Managers’ Index) hit a survey high at the start of 2010, pointing to sharp growth of the Chinese manufacturing sector while India's manufacturing sector expanded at fastest pace for nearly one-and-a-half years in January.

China

At 57.4, up from 56.1 in the previous month, the headline HSBC China Manufacturing PMI (Markit Purchasing Managers’ Index)  – a headline index designed to measure the overall health of the manufacturing sector –  rose to a record high at the start of 2010, signalling a marked improvement of operating conditions in the Chinese manufacturing sector. The index has now risen more than sixteen points since posting a record low in November 2008.

Manufacturing production in China rose for the tenth successive month in January, increasing at a sharp rate that was the second-fastest in the survey history. Where an increase in output was signalled, firms often linked growth to greater inflows of new business from external and domestic sources. Data signalled that new orders rose at the fastest rate since the first month of data collection in April 2004. New business growth was supported by firmer market demand, while there were also reports that improved economic conditions had led to higher client spending. Export sales also rose in January, increasing at a near-record rate. This was in sharp contrast to the severe reductions seen at the beginning of 2009.

Staffing levels in the Chinese manufacturing sector continued to rise in January. Despite easing to the slowest in five months, the rate at which firms added to their workforce numbers was comfortably faster than the series average. Those respondents that reported a rise in employment generally attributed growth to continued gains in new business and a subsequent increase in production requirements.

Prices charged by Chinese manufacturers rose again in January, extending the current period of inflation to seven months. The rate at which firms raised their charges was the most marked since July 2008, mainly reflecting rising input prices. Higher client demand also allowed manufacturers to raise their factory gate prices on the month.

Data signalled that average cost burdens faced by Chinese manufacturing firms rose sharply in January, buoyed by increased prices for a number of raw materials. Prices paid for brass, copper, oil, steel and zinc were all reported to have risen from one month previously. Input price inflation, which was the strongest since July 2008, has now been signalled for seven months in succession.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist for China at HSBC said: “Industrial activity continues to accelerate, implying stronger GDP growth in 1Q. But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months.”

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. The panel is stratified geographically and by Standard Industrial Classification (SIC) group.

Source: Markit Economics

India

The Indian manufacturing sector began 2010 on a firm footing, with both new orders and output expanding considerably and at accelerated rates. This was in stark contrast to the situation around the turn of 2009, when production and new business contracted at rapid rates. Although the recovery in employment has yet to really gain traction, the marginal pace of job creation in January was nevertheless the fastest since September 2008. Meanwhile, input and output prices rose at sharp and accelerated rates.

Climbing to 57.6 in January, its highest level for seventeen months, the seasonally adjusted HSBC India Manufacturing PMI (Markit Purchasing Managers’ Index, signalled a considerable improvement in operating conditions faced by Indian manufacturers. The headline index has now signalled expansion of the sector since April 2009, and at increasing rates for the past two survey periods.

Indian manufacturers sharply raised their output levels during the latest survey period, in line with the upward trend in new work. Production and new orders have both increased for ten straight months, with the latest gains above their pre-downturn averages. Data showed that domestic and foreign demand rose considerably since December. The improvement in external demand was noticeable, although total new business growth continued to increase at a rate above export orders.

Reflecting greater workloads, respondents noted a build-up of unfinished business during January. However, the rate of accumulation was only weak, as many firms increased efforts to catch up on backlogs.

Data pointed to slight growth of Indian manufacturing industry employment in January, which panellists linked to higher production requirements and capacity constraints. Although only weak, the increase was the strongest for almost a year-and-a-half.

In order to accommodate rising production requirements, and to re-build depleted stocks, Indian manufacturers purchased more inputs in the first month of the new year. Buying activity grew at a substantial pace that was the fastest since May 2008. Additional demand for raw materials placed pressure on suppliers’ capacities. Consequently, lead times lengthened for the second month running, albeit only slightly.

Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said: “Any lingering concern that India's manufacturing recovery was tailing off should be well and truly put to rest by this strong release. A second consecutive rise in the PMI has taken the series to a new cycle high, consistent with on-going double digit rises in industrial production. The most impressive part of the release was the more than 5 point jump in the new export orders index, which took it to its highest level since October 2007 and indicated that the recovery is by no means dependent on domestic demand alone.

“At the same time, however, price pressures are clearly intensifying. The rate of increase in input prices was the largest since the PMI began nearly 5 years ago, while the survey suggests that companies are more willing to pass on these rises in the form of higher output prices - something which the RBI is unlikely to take too kindly to. Admittedly, the employment index only inched above 50 but it can't be long before job hiring picks up more aggressively.”

The HSBC India Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies.