Heatwave scorches manufacturing output in May

Companies witnessed reduced working hours in May amid an intensive heatwave in India that sent temperatures soaring to record highs. This also hampered production volumes, according to HSBC India which released manufacturing PMI data today.

Factory orders and production expanded at softer rates in May. The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index fell from 58.8 in April to 57.5 in May, the lowest in three months.

“The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes,” says Maitreyi Das, global economist at HSBC.

The ongoing heatwave has also affected consumption as people avoid stepping out in the blazing hot sun.

India's manufacturing sector remained firmly in expansion midway through the first fiscal quarter, despite a mild loss of growth momentum. New orders also rose at a softer pace, but international sales increased to the greatest extent in over 13 years. In contrast to the trend for total sales, new export orders rose at a faster pace in May. The upturn was the strongest in over 13 years as firms noted gains from customers across several countries in Africa, Asia, the Americas, Europe and the Middle East.

“Goods producers were at their most upbeat about the outlook in nearly a decade, and lifted workforce numbers at one of the fastest rates seen in the survey history. Meanwhile, there were stronger increases in both input costs and output charges,” the PMI report says.

May data showed a further upturn in Indian factory production, which stretched the current sequence of expansion to nearly three years, the PMI release says. “Despite easing to a three-month low, the rate of increase remained sharp. Growth was supported by new business gains, demand strength and successful marketing efforts, anecdotal evidence showed. The slowdown was attributed to reduced working hours amid intensive heat and rising production costs,” it adds.

“On the price front, higher raw material and freight costs led to a rise in input prices. Manufacturers were only able to pass on a part of this increase to consumers, resulting in a squeeze in manufacturing margins. The positive news is that May recorded the highest level of positive sentiment among manufacturing firms in just under a decade, resulting in increased job creation,” says Das.

New orders rose at a substantial pace that was nonetheless the slowest in three months. The rise was associated with marketing efforts, demand strength and favourable economic conditions. Growth was reportedly stymied by competition and election-related disruptions.

Jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers, shows the survey.