The latest HSBC survey reveals an optimistic economic outlook for June, with the Manufacturing, Services, and Composite Purchasing Managers’ Index (PMI) figures showing significant growth. The PMI rose by 0.4 percentage points to 60.9, up from May’s downward revised figure of 60.5. This blog explores the key insights from the survey, highlighting the rapid job creation, increased business activity, and the impact on corporate margins.
- Robust PMI Growth: The final PMI for June rose to 60.9, indicating a strengthening of business activity in the country, driven by gains in both the manufacturing and services sectors.
- Historic Job Creation: The pace of job creation reached its highest level in over 18 years, reflecting the positive business sentiment and rising demand.
- Increased New Orders: New orders, primarily domestic, saw a significant uptick, leading to higher output in both manufacturing and services.
- Moderating Input Prices: Input prices showed slight moderation, improving corporate margins, particularly for manufacturing firms.
PMI Growth and Business Activity
Manufacturing and Services Sectors
The composite output index experienced further growth in June, bolstered by an increase in new orders. This growth led to higher hiring rates in both the manufacturing and services sectors. According to Maitreyi Das, Global Economist at HSBC, the manufacturing sector recorded a faster pace of growth compared to services, providing a significant boost to the overall PMI.
Domestic vs. International Demand
While domestic orders surged, international demand showed mixed results. New export orders slowed but remained above historical averages. Service-related firms fared better in terms of international demand, with broad-based gains from regions such as Africa, Asia, Australia, the Americas, Europe, and the Middle East.
Job Creation and Capacity Pressures
Fastest Job Creation in 18 Years
Rising demand led to increased capacity pressures, prompting firms in both sectors to boost staffing levels and input buying activity. The survey highlighted that the pace of job creation in June was the fastest in over 18 years, reflecting the robust economic environment.
Input Prices and Corporate Margins
Moderating Input Cost Inflation
June saw a moderation in input cost inflation, falling below the long-term average. Both manufacturers and service providers reported reduced input price pressures. Despite this, overall price levels remained elevated, with higher labor and material costs, particularly for food, steel, and electronics.
Corporate Margins Improvement
Corporate margins saw improvement as input costs moderated. Manufacturing firms, in particular, were able to pass on a portion of their input costs to customers, resulting in higher gains. This divergence between the manufacturing and service sectors highlights the varying impact of input costs on different industries.
Future Outlook
Optimism and Caution
Despite the positive trends in June, the future output index dropped sharply, indicating a degree of caution among private sector firms. The overall optimism weakened to a three-month low but remained above the series average. Firms believe that sustained marketing efforts will be crucial in maintaining demand momentum.
Conclusion
The PMI surge in June, coupled with the fastest job creation in 18 years, underscores a robust and growing economy. While there are signs of caution regarding future output, the current economic indicators point towards a period of sustained growth and business activity. Companies are likely to focus on strategic marketing and operational efficiencies to navigate the evolving economic landscape.