Private sector activity improves in June; business confidence falls

Private sector activity improves in June; business confidence falls

According to the HSBC Flash India Purchasing Managers' Index (PMI) released on Friday, manufacturing as well as services activity picked up in June compared to May, but business optimism levels declined sharply for both sectors despite margins improving amid a significant reduction in input costs.

Rising demand and capacity pressures forced manufacturing as well as services businesses surveyed for the PMI to raise staffing levels and input purchases, with hiring growing at the fastest pace in 18 years.

According to the flash PMI, which serves as an advance indicator for one-month economic momentum, manufacturing sector activity improved after falling to a three-month low in May and rose to 58.5 from 57.5 in the previous month. A reading of over 50 on the PMI indicates expansion in the level of activity.

Growth in the services sector has not been as strong as the manufacturing sector, with the PMI rising marginally from 60.2 in May to 60.4 this month. However, service sector players fared better than goods producers in terms of global demand, with new orders reported from across the world.

Input costs fell in both sectors, while manufacturers raised output prices while service companies reduced the fees they charged customers. Corporate margins improved in the private sector.

“However, we should remain slightly cautious as the future output index has declined sharply,” HSBC economists Pranjul Bhandari and Maitrayee Das wrote in a note. “The overall degree of optimism weakened to a three-month low, but the series remains above average,” they added.

The flash PMI is typically based on around 80%-90% of the total PMI survey responses received each month, based on which final PMI numbers are released early in the following month.

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