The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the manufacturing sector – posted 55.3 in June, down from May’s 57.5 to a nine-month low.

While the latest strengthening of business conditions was weaker than the long-run trend, it was nonetheless marked.

New business received by manufacturers in India increased substantially during June, extending the sequence of sustained growth to twenty-seven months. However, the latest expansion was the slowest seen during 2011. New export orders rose solidly, but the rate of increase was the weakest since November 2009.

Reflective of the slowdown in overall new order growth, the latest rise in output was also lower than in the previous survey period. However, reports of labour shortages and power cuts impacted negatively on production. Subsequently, backlogs of work increased for a fifteenth successive month.

While the latest accumulation eased since May, it was stronger than the historical average. A slight rise in finished goods stocks was indicated in June, although the majority of panellists noted no change in levels of post-production inventories.

Despite pressure on operating capacity, employment in the Indian manufacturing sector fell in June. Anecdotal evidence suggested that this was reflective of a lack of available labour to fill positions as vacancies arose.

A substantial increase in purchasing activity was recorded in June. However, the extent of the rise was weaker than in May as many companies commented that high raw material costs limited their purchasing power.

Suppliers’ delivery times continued to lengthen, with anecdotal evidence suggesting that vendor performance was negatively impacted by higher levels of input buying, alongside shortages of materials, labour and power.

June data signalled a substantial rise in input costs faced by Indian manufacturers that was driven by higher prices for raw materials. Input price inflation has been recorded since April 2009, with the latest increase in costs sharp in the context of historical data.

Output prices also rose at an above average rate, but the latest increase slowed to the weakest in seven months as pricing power was restricted by strong competition for new business.