India’s manufacturing sector expanded at its slowest pace in nearly five years during July as demand weakened and hiring slowed.
The S&P Global HSBC India Manufacturing Purchasing Managers’ Index fell to 53.5 from 54.2 in June. The reading marked its lowest level since August 2021. It also came below the earlier estimate of 53.9. However, the index stayed above 50, which signals continued growth in factory activity.
Although the headline index weakened, July’s reading showed that production, exports, employment, and purchasing activity still expanded. The survey also showed a clear gap between domestic and overseas demand.
Export growth improved, while local orders lost pace. This divide shaped the month’s weaker overall result and kept manufacturers cautious on staffing and pricing decisions.
New orders increased at the second-slowest rate in more than four years. Manufacturers linked the slowdown to weaker client interest and difficult market conditions. Softer domestic demand limited sales growth across several parts of the sector.
Meanwhile, export orders improved after a sharp slowdown in June. Overseas sales rose at their fastest pace since April. Companies reported stronger demand from Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand, and the United Arab Emirates.
Factory output also increased during July. The pace of growth changed little from June, though it stayed near the weaker levels seen since mid-2022. Consumer goods producers faced softer conditions. Intermediate and capital goods manufacturers recorded better performance.
Employment increased for the 29th straight month, but hiring grew at the slowest pace in that period. Job creation also weakened for a third consecutive month. The trend showed that manufacturers became more careful as order growth lost speed.
Companies also reduced the pace of input buying during July. Even so, manufacturers continued to build inventories as supply conditions improved. Stocks of raw materials and finished goods both increased during the month.
Supplier delivery times shortened at one of the fastest rates recorded by the survey. The improvement suggested that supply chain delays continued to ease. However, fresh tensions in the Middle East created doubts about how long the gains could last.
Pranjul Bhandari, chief India economist at HSBC, said, “The suppliers’ delivery times index rose in July, an encouraging sign that supply chain delays are continuing to unwind. However, renewed tensions in the Middle East have raised fresh doubts about how durable these improvements will be.”
Input cost inflation slowed to a five-month low in July. Price increases for several raw materials became less severe, though transportation costs stayed high. Lower input inflation reduced some pressure on factory budgets.
Selling prices rose only modestly and at a pace close to June’s rate. Manufacturers passed on limited cost increases to customers. Softer demand and strong competition restricted their ability to raise prices more sharply.
Bhandari also said, “Meanwhile, output and new export orders strengthened, pointing to resilient demand, particularly from overseas markets.” She added that input costs eased while output charges increased as firms sought to protect margins.
Business confidence improved from June’s recent low. Manufacturers expected demand, infrastructure projects, and new client enquiries to support activity. The survey covered about 400 manufacturing companies across India and measured output, orders, employment, costs, and business expectations.
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