Factory growth accelerates in May but firms cautious on hiring

Despite the uptick in growth, manufacturing employment was broadly unchanged in May.

The manufacturing output jumped to a 4-month high in May as growth of production and new orders firmed up, but companies took a cautious line on hiring, an HSBC survey said on Monday.

The headline HSBC India Purchasing Managers' Index (PMI), compiled by Markit, surged to 52.6 in May, from 51.3 in April, with levels of production and new orders rising at the fastest rates since January 2015. The PMI is a composite gauge designed to give a single figure snapshot of manufacturing business conditions.

A figure above 50 indicates the sector is expanding while one below that level means contraction. "PMI data signalled a further robust expansion of the Indian manufacturing economy in May."

"Both output and new order growth accelerated to 4-month highs whereas the rise in export orders lost traction," Markit Economist Pollyanna De Lima said.

Despite the uptick in growth, manufacturing employment was broadly unchanged in May.

Over 99 per cent of panelists reported same staffing levels, citing uncertainty about the sustainability of growth.

"The outlook for the sector is, however, clouded by a stagnant job market as firms remain uncertain about the sustainability of the upturn," Lima added.

The total volume of new work received by manufacturing firms increased for the 19th successive month at the quickest pace since January, driven by improved demand from the domestic and foreign markets. However, the rate of expansion of overseas orders moderated in May.

On inflation, Lima said: "Input cost inflation ticked higher and output prices were raised in May, but inflation rates are nonetheless weak in the context of historical data. This indicates that further rate cuts are still on the horizon."

The central bank has lowered its policy rate twice so far outside the cycle in 2015, but kept it unchanged at its last review on April 7 due to fears of unseasonal rains affecting food prices. The next policy meet is scheduled to be held tomorrow.