Manufacturing loses momentum in June, PMI slips to 52.1 on weak demand

The Indian manufacturing sector growth moderated in June, largely owing to softer increase in new work intakes, which in turn translated into slower rises in output and employment, a monthly survey said Monday.

The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) was at 52.1 in June, down from May's three-month high of 52.7, indicating a slight setback in the Indian manufacturing sector.

This is the 23rd consecutive month that the manufacturing PMI has remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"Gauges of factory orders, production, employment and exports remained inside growth territory, but rates of expansion softened in all cases as domestic and international demand showed some signs of fading," said Pollyanna de Lima, Principal Economist at IHS Markit.

According to the survey, consumer goods was the key source of growth, where robust increases in sales, output and employment were registered.

Modest expansions in production and new work were noted in the intermediate goods category, but jobs stagnated.

At the same time, operating conditions in the capital goods sector were broadly unchanged.

Meanwhile, growth of new export orders also showed signs of weakness.

"Also, a further decline in unfinished business points to excess capacity among goods producers, meaning that job creation may come to a halt in the near term should demand growth fail to revive," Lima added.

On the prices front, June data continued to show only a moderate increase in input costs and enabled firms to lower charges.

Easing price pressure might prompt the Reserve Bank of India (RBI) to continue with its dovish stance in its upcoming policy review in August.

In the June review, RBI had cut key lending rates by 0.25 per cent for the third time this year to spur economic growth.

"Firms tried to boost sales by offering price discounts for their goods, in light of subdued rises in cost burdens. Tamed cost inflation may assist competitive pricing and lift demand to a meaningful extent as we head into the second half of 2019."

Going ahead, manufacturers remained upbeat about growth prospects in June, with marketing initiatives, stable political conditions and forecasts of a pick-up in demand underpinning positive sentiment. However, the degree of optimism weakened slightly from that recorded in May.