India manufacturing PMI at 17-mth high

Written by Agencies | New Delhi | Updated: Aug 1 2014, 19:37pm hrs
India PMIIndia PMI jumps to 53 in July from 51.5 in June, fastest pace in 17 months. (Reuters)
India's manufacturing sector growth jumped to 17-month high in July, driven by "flood of new orders" from both domestic and overseas companies on the back of post-election boost to sentiments, an HSBC survey said.

The HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, rose to 53.0 in July, up from 51.5 in June, signalling a solid improvement in business conditions.

A PMI reading above 50 indicates growth while a lower reading means contraction.

Business conditions in the Indian manufacturing sector improved for the ninth consecutive month in July, as companies scaled up production in response to robust levels of demand.

"A flood of new orders from both domestic and external sources has led to a surge in activity, pushing the manufacturing PMI to a 17-month high," HSBC Co-Head of Asian Economic Research, Frederic Neumann said, adding that all monitored categories witnessed a rise in output and order flows.

Striking a quick word of caution, HSBC said input price pressures have risen sharply and supply side constraints still limit the pace with which growth can recover without stoking inflation.

"The speed of the recovery has also lifted price pressures, with input prices rising steeply. This means that the RBI may not cheer as loudly as the rest of us," Neumann said.

The report added that rains have progressively improved, reducing the severity of the drought, and the new government has been proactive in addressing potential price risks.

"These two factors provide the RBI with enough comfort to stay on hold next week. But, the battle against inflation is not over, price indicators within the PMI serve as a reminder of this fact. The speed of the growth recovery needs to be monitored, if it is too quick it could be inflationary," HSBC said.

RBI's next credit policy review is scheduled on August 5.

According to official figures, retail inflation in June touched its lowest mark at 7.31 per cent since January 2012 and wholesale price-based index slid to four-month low of 5.43 per cent, mainly because of easing vegetables prices.

HSBC manufacturing PMI jumps to 17-month high

(Reuters) Indian factory activity expanded at its fastest pace in 17 months in July as firms responded to burgeoning new orders by increasing output even as input prices jumped sharply, a business survey showed on Friday.

The HSBC Manufacturing Purchasing Managers' Index (PMI) , compiled by Markit, rose to 53.0 in July from 51.5 in June, its highest since February 2013. A reading above 50 separates growth from contraction.

While the PMI has signalled an expanding manufacturing sector for nine months, a surge in new orders in July helped drive the solid improvement in business conditions.

The new orders sub-index soared to 55.9, its highest since February last year. That was the biggest monthly jump in the measure in eight months.

"A flood of new orders from both domestic and external sources has led to a surge in activity," said Frederic Neumann, co-head of Asian economic research at HSBC.

"Details within the survey show that all monitored categories witnessed a rise in output and order flows."

However, the strong reading was tempered by a sharp increase in the cost of raw materials.

Input prices rose at their fastest pace since February, indicating inflation may remain elevated in coming months as companies seek to pass on the higher costs although that is not something they did to a large extent last month.

"The speed of the recovery has also lifted price pressures... This means that the Reserve Bank of India may not cheer as loudly as the rest of us," Neumann added.

Consumer inflation eased to 7.3 percent in June, but fears of a spike in food prices if there is below average rainfall will probably prompt the central bank to hold its key interest rates steady at its next meeting on August 5.

China's factories spring to life as global trade reawakens

Activity in China's vast factory sector expanded at the fastest pace in 27 months in July, while industry surveys across Asia showed a pick up in export orders that hinted at a long-awaited revival in global trade.

China's official manufacturing purchasing managers' index (PMI) rose to 51.7 in July - the strongest since April 2012 and up from 51 in June, the National Bureau of Statistics said on Friday. Economists had expected a reading of 51.4.

The upbeat result was echoed in the HSBC/Markit China measure of manufacturing which climbed to an 18-month peak of 51.7, from June's 50.7. Anything above 50 in these surveys separates growth from contraction.

The reports added to evidence that Beijing's stimulus measures were gaining traction in the world's second-largest economy, and followed news that growth in the United States had rebounded from a winter lull.

"Taken literally, these PMIs signal an exceptionally strong start for third quarter growth in China," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.

"Each time the PMIs have printed around 51 to 52 in recent years, annual economic growth peaked at around 8 percent in the same quarter, and so we pencil that in as a starting point."

ORDERS FLOOD IN

China was not alone in scenting better times ahead.

India's factory activity expanded at its fastest pace in 17 months in July as firms responded to burgeoning new orders by increasing output.

The HSBC PMI, compiled by Markit, rose to 53.0 in July from 51.5 in June, its highest since February 2013.

"A flood of new orders from both domestic and external sources has led to a surge in activity," said Frederic Neumann, co-head of Asian economic research at HSBC.

"Details within the survey show that all monitored categories witnessed a rise in output and order flows."

Adding to the promising omens for global trade, South Korea reported exports to the United States expanded by over 19 percent in July, the fastest clip in nine months.

Taiwanese manufacturers, who do much of the work on Apple's iPhones, reported a robust improvement in overall business conditions in July, with output, total new orders and new export orders rising sharply.

All of which helped offset a disappointing reading from Japan, which has been struggling to recover from a tax-induced slump in consumer spending.

The final Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 50.5 in July, from a preliminary reading of 50.8 and a final 51.5 in June.

In a brighter sign, new export orders grew for the first time in four months, albeit modestly. Policymakers have been counting on an export rebound to help ease the pain from the sales tax hike, but shipments have been stubbornly weak.

PARSING PAYROLLS

For global financial markets, the quickening pulse in Asian trade was a welcome diversion from conflict in the Middle East and Ukraine, as well as Argentina's latest brush with default.

The U.S. factory survey from the Institute for Supply Management (ISM) due later Friday is also expected to tick up to 56.0 in July, which would be the best reading so far this year.

It will be preceded by the ever-influential U.S. payrolls report for July which analysts expect will show another healthy gain of 233,000 net new jobs.

The unemployment rate is seen holding at 6.1 percent, which might be welcomed by investors worried that further tightening in the labour market might lead the Federal Reserve to lift interest rates earlier than otherwise.

Those concerns were inflamed on Thursday when data showed U.S. labour costs rose by the most in more than 5-1/2 years during the second quarter.

They also got some of the blame for a sell off on Wall Street that saw the S&P 500 suffer its biggest daily loss since April.