Source: Markit

China's manufacturing PMI (Purchasing Managers’ Index) hit three-month high in August, as both output and new business returned to growth. Meanwhile, Indian manufacturing sector expanded for 17th successive month.

China: The seasonally adjusted headline HSBC China Manufacturing PMI rose to a three-month high of 51.9 in August, pointing to a moderate improvement in Chinese manufacturing sector operating conditions following a slight deterioration in the preceding month. Nonetheless, the index is still almost six points lower than the series-record high registered at the start of the year.

Chinese manufacturing output rose in August, ending a two-month period of contraction. Nonetheless, the rate of production growth was much slower than the near-record seen at the beginning of 2010. Where an increase in output was signalled, respondents commonly linked growth to greater inflows of new business, which rose for the first time in three months during August. The rate of new business growth was moderate, but slower than the long-run series average. Anecdotal evidence suggested that new business wins reflected stronger market demand and the success of promotional campaigns. However, the overall rise in new work centred on the domestic market, with new export business falling slightly for a third month in succession.

Manufacturing employment in China rose again during August, largely as a result of new business gains and increased graduate recruitment. However, the rate of job creation was only marginal, and the joint slowest since June 2009. Lacklustre employment growth primarily reflected the voluntary departure of staff, with retirement and resignations due to low salary payments commonly cited by panellists.

Markit said latest data indicated that average input costs faced by Chinese manufacturing firms increased in August, following two successive monthly reductions. The rate of input price inflation was marked, but slower than the long-run series average. Prices paid for steel (on domestic markets) and grain (on international markets) were reported as having risen on the month. Reflecting a combination of higher raw material prices and stronger client demand, manufacturers reported raising their output prices for the first time in three months during August. However, the pace of output price inflation was relatively subdued.

India: The seasonally adjusted HSBC PMI – - a headline index designed to measure the overall health of the manufacturing sector – - posted 57.2 in August, falling slightly from July’s 57.6. The latest reading pointed to a marked expansion of the Indian manufacturing sector which, despite being the joint-slowest in eight months, continued to show a strong rebound in business conditions following the downturn at the end of 2008/beginning of 2009. Moreover, growth remained above the long-run average for the series.

Incoming new business continued to rise at a substantial pace during August. The latest expansion in new orders slowed slightly in the month, but maintained the strong growth trend seen throughout 2010. The increase in new export business also slowed, but remained above the historical average for the series.

The latest rise in overall new orders supported a further substantial increase in output. The rate at which production expanded was in line with that recorded in July. Nonetheless, backlogs of work continued to accumulate. Manufacturers commented that shortages of raw materials and power cuts had led to the latest rise in outstanding business, alongside the sustained rise in new orders.

August data signalled an increase in stocks of finished goods at manufacturers in India. However, the extent of the rise was only marginal.

Despite sharp growth in new orders and output, employment within the Indian manufacturing sector fell for a second consecutive month in August. However, the latest reduction in headcounts was only marginal.

Reflective of increased production, purchasing activity rose again during August, and at a marked rate. Subsequently, suppliers’ delivery times lengthened. Some panellists also noted that shortages of materials had contributed to the latest deterioration in vendor performance.

Input price inflation was reported for a seventeenth successive month in August, with the latest increase driven by higher raw material prices. Charges also rose, although the extent of the increase was limited by strong competition for new business.

Commenting on the India Manufacturing PMI survey, Frederic Neumann, Co-Head of Asian Economics Research at HSBC said:  "India's economy shows no signs of cooling off. Output continues to expand at a brisk pace and new orders remain in solid expansionary territory, signalling further growth ahead. But, growth comes at a price: inflationary pressures, already a concern, continue to simmer, with input prices rising and output price pressures only easing marginally. To be sure, the labor market may be relaxing a bit, with companies no longer hiring as aggressively as before. But, so far there are few signs that this is curtailing inflationary pressures meaningfully."

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.

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