Factory activity levels hit a 12-month low in December

Hopes of a recovery in the manufacturing sector took a fresh hit as factory activity levels in India’s private sector stumbled to a 12-month low in December. File
| Photo Credit: Reuters

Hopes of a recovery in the manufacturing sector took a fresh hit as factory activity levels in India’s private sector stumbled to a 12-month low in December from an already weak November performance, with both new orders and output levels slipping to the lowest through 2024, as per a private survey-based index.

Manufacturing activity expansion, which had slipped a joint-11-month low in November, plummeted further as per the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI), which dropped from 56.5 in November to 56.4 in December. A reading of over 50 indicates a rise in activity levels.

India’s manufacturing sector reported a growth of just 2.2% in the July to September quarter of this financial year and the latest PMI reading suggests there is no ostensible rebound likely in the October to December quarter or the third quarter of 2024-25.

Although new export orders rose at a slower rate than total new business for surveyed factories, they marked the fastest uptick in international shipment deals since July.

Input costs continued to firm up, with firms reporting an uptick in container, material and labour costs in December, but the overall rate of input price inflation was moderate and eased from November. However, having raised selling prices at the fastest pace in 11 years during November, producers continued hiking prices for customers at a rate that was higher than the extent of rise in cost burdens.

Although firms continued to stock up on inputs, the rate of accumulation was the weakest since December 2023. Meanwhile, post-production inventories of finished goods contracted at the fastest pace in seven months, with firms attributing this to high sales volumes. This marks a reversal from November when finished goods’ stocks had risen for the first time since August 2017.

However, capacity pressures among Indian manufacturers remained mild, implying there are no immediate need for them to undertake investments and expand workload. While manufacturers were confident of a rise in output over 2025, the sentiment was “nevertheless curbed by concerns around inflation and competitive pressures”.

Despite the downturn in expansion levels, factories continued to hire at a broader level although some producers have initiated layoffs last month. “Not only did manufacturing employment increase for the tenth month in a row during December, but also the rate of job creation quickened to the fastest in four months. Around one-in-ten companies recruited extra staff, while fewer than 2% of firms shed jobs,” S&P Global, which conducts the PMI surveys, said in a note.

HSBC economist Ines Lam said India’s manufacturing activity ended a strong 2024 with a soft note amidst more signs of a slowing trend, albeit moderate, in the industrial sector.

“The rate of expansion in new orders was the slowest in the year, suggesting weaker growth in future production. That said, there was some uplift in the growth of new export orders, which rose at the fastest pace since July. The rise in input prices eased slightly, wrapping up the year when Indian manufacturers felt the strain of sharp cost pressures,” Ms. Lam added.