Private sector output growth surges in June after sluggish May

The private sector saw a substantial output growth in June after a lost momentum in May, reveals the HSBC Flash India PMI Report. Business activity grew at quicker rates among manufacturing firms than their service counterparts. The data compiled by S&P Global indicated slight growth in aggregate employment due to increased total new orders and international sales.

The Composite Output Index increased from 60.5 in May to 60.9 in June. The recent growth, however, is not an outlier rather is a part of a trend common to the last 12 months.

“The composite flash PMI ticked up in June, supported by rises in both the manufacturing and service sectors, with the former recording a faster pace of growth,” said Maitreyi Das, Global Economist at HSBC.

The index measures monthly changes in the combined output of manufacturing and service sectors. These indices are weighted averages of comparable manufacturing and services PMIs. Weights reflect the sector’s relative size as per the official GDP data. The Purchasing Managers’ Index (PMI) is derived from the monthly survey of the private sector companies which provides information on the current and future conditions of a business.

Since February, output growth remained stronger for goods producers than for service providers. The manufacturing PMI rose from 57.5 in May to 58.5 in June highlighting a holistic improvement at the sector level at the end of the first quarter.

Private sector companies attributed this to strengthened demand and new business gains.

New export orders increased for a consecutive twenty-second month. The survey noted export gains from Africa, Asia, Australia, the Americas, Europe, and the Middle East, particularly in the service sector.

“New export orders slowed slightly in June, although the rate of expansion was the second fastest since the beginning of the series. As a result, capacity pressures became evident in June, leading firms to increase their staffing levels to the greatest extent in over 18 years,” added Das.

What led to higher job creation were the efforts to clear backlogs and meet higher production needs. The pace of job creation was the fastest in over 18 years. Aggregate employment growth strengthened at both manufacturers and service providers, with a higher uptick among the former.

Positive demand trends also encouraged manufacturers to purchase additional inputs for use in production processes.

Despite the uptick in purchase quantities, suppliers timely delivered materials, as was visible in the modest improvement in vendor performance.

The report noted a slight fall in finished goods stocks in contrast to pre-production inventory accumulation.

Input cost inflation eased slightly in June, but remained elevated as labour and material costs soared. Manufacturing firms managed to pass on the higher costs to customers.