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China's manufacturing expanded in April but slowest pace for six months; Indian manufacturing continued to grow
By Finfacts Team
May 4, 2010 - 6:25:16 AM
China's manufacturing expanded in April but at the slowest pace for six months. Indian manufacturing grew at a robust pace.
China: The headline HSBC China Manufacturing Purchasing Managers’ Index (PMI) -- a headline index designed to measure the overall health of the manufacturing sector - - remained above the neutral 50.0 threshold in April, pointing to a further improvement in Chinese manufacturing sector operating conditions. Despite falling to a six-month low of 55.4, the index was consistent with a marked rate of expansion.
Manufacturing production rose for the thirteenth month running during April. Although still marked, the rate of expansion was the slowest since last July. Where a rise in output was signalled, panellists often linked growth to greater inflows of new business. Further gains in new work primarily reflected stronger market demand, while there were also reports that improved economic conditions had led to higher client spending. Despite easing to the slowest in five months, the rate of expansion in new work was substantial. Data signalled that export sales rose again in April. However, the rate of increase eased from March’s near-record to the slowest since July 2009. Furthermore, a much faster rise in overall new orders relative to new export business suggested that domestic demand was the primary driver of sales growth in April.
According to the latest data, backlogs of work were accumulated at the fastest rate in five years during April. Survey respondents widely reported that growth of unfinished business reflected continued gains in new work.
Employment growth in the Chinese manufacturing sector was registered for the eleventh consecutive month in April. Those respondents that reported a rise in employment generally attributed growth to higher intakes of new business and a subsequent increase in production requirements.
April data signalled that prices charged by Chinese manufacturing firms rose at a marked rate that was the fastest in three months. Stronger output price inflation largely reflected higher prices paid for a wide range of raw materials. Some respondents also mentioned that firmer demand had strengthened manufacturers’ pricing power. Meanwhile, average input prices faced by Chinese manufacturers rose sharply in April. Copper, cotton, oil and steel were all reported to have risen in price on the month. Input price inflation has now been signalled for ten successive months.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "April’s PMI points to a moderate slowdown in the expansion of manufacturing activity. We see this as good news because it means that Beijing's policy tightening is starting to cool the overheated economy, which will help to contain inflationary risk in the coming quarters."
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
India: The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) was down slightly in April to 57.2, from 57.8 in March. Although this slip indicates that operating conditions improved at a weaker rate during the latest survey period, the latest reading still signalled a considerable strengthening in the health of the industry.
The fall in the PMI reflected slower expansions in both output and new orders. Nevertheless, the indices tracking trends in these two variables remained at levels consistent with sharp rates of growth. Respondents stated that demand for Indian manufactures was supported by better global economic conditions, successful promotional activities and good business reputations. Although new export work continued to rise at a marked pace, data showed that the domestic market remained the primary driver of total new order growth.
Partly as a result of further new order gains, but also due to power cuts and input delivery delays, outstanding business at Indian manufacturers rose solidly in April. It was the fourth increase in five months and a new series record.
To ease capacity pressures and accommodate higher production requirements, manufacturers hired more staff and built up input stocks in April. Job creation was moderate and only slightly weaker than the nineteen-month high recorded in February. Meanwhile, another substantial rise in buying activity enabled firms to expand their raw material holdings at a marked and accelerated pace.
Greater demand for inputs from Indian manufacturers placed additional pressure on vendors in April. Consequently, lead times lengthened for the second month running. That said, the rate of deterioration was only moderate and little-changed since March. Reports suggested that power cuts and short supplies of certain commodities also contributed to delivery delays.
Manufacturers reported another rise in their average purchasing costs in April. Input price inflation was rapid and above the pre-crisis trend, despite easing from March’s series record high. Panellists linked the latest increase to greater fuel and raw material prices, making particular reference to the elevated costs of metals, timber and cotton.
Prices charged for Indian manufactures rose at a marked pace during April, as firms responded to further growth in their cost burdens in an attempt to defend profit margins.
Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said:
"India’s manufacturing PMI fell back for a second consecutive month in April but, at 57.2, remained consistent with double-digit year-on-year growth in the industrial sector. Both new orders and output indices were above 60 and employment showed modest gains.
"Of more interest, however, are the series relating to prices and capacity issues. Input prices showed a slightly smaller rise in April than March, although it was still the second highest increase since the PMI began five years ago. Meanwhile, output prices registered their strongest increase for three months as backlogs of work jumped to an all time high. The latter further supports the argument that demand is growing more strongly than supply, giving companies the confidence to push through price rises. In our view, India is in for a protracted period of rate hikes, the extent of which will surprise most forecasters."
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.
