What PMI data show about India business activity and outlook as Covid cases surge

by 5paisa Research Team Last Updated: Dec 16, 2022 - 05:42 pm 41.2k Views
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India’s manufacturing and services sectors, which account for over 80% of economic output, had rebounded quickly last year after taking a hard knock during the months-long lockdown in 2020 and the second wave of Covid-19 in the April-June quarter of 2021. But businesses are turning cautious again amid the third wave of the pandemic.

The pace of expansion in India’s manufacturing and services sectors slowed in December to a three-month low as the Omicron variant of the coronavirus began spreading worldwide and was even detected in India. India is now firmly in the grip of a third wave as daily Covid cases jumped to more than 58,000 on January 5 from 7,000-8,000 barely ten days ago.

The Composite Purchasing Managers’ Index (PMI) Output Index slipped from 59.2 in November to 56.4 in December, but remained above its long-run average of 53.9, according to IHS Markit. This indicates private-sector companies recorded a robust increase in output during December, despite the slowdown. A figure above 50 means expansion.

Manufacturing, services PMI data

Both manufacturing production and services activity rose at slower rates in December. The seasonally adjusted IHS Markit India manufacturing PMI slipped to 55.5 from November's ten-month high of 57.6.

Similarly, the seasonally adjusted India Services Business Activity Index fell from to a three-month low of 55.5 from 58.1 in November.

Despite the fall, the numbers are consistent with a marked rate of economic expansion and point to a robust improvement in overall operating conditions that was elevated by historical standards.

“2021 was another bumpy year for service providers and growth took a modest step back in December. Still, the latest readings pointed to robust increases in sales and business activity compared to the survey trend,” said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Aggregate output rises, jobs decline

According to IHS Markit, aggregate new orders expanded for the fifth month running in December. The upturn was substantial, albeit the weakest since September.

Manufacturers reported a stronger increase in sales than service providers. December data pointed to a broad-based decline in employment at goods producers and service providers.

At the composite level, jobs decreased for the first time in four months. In the manufacturing sector, employment fell fractionally in response to a lack of pressure on capacity.

In the services sector, companies were able to stay on top of workloads and as a consequence reduced headcounts at the end of 2021 despite robust gains in new work in recent months.

The rate of depletion was moderate, however, and the weakest over this period. In fact, a vast majority of surveyed companies (96%) left payroll numbers unchanged from November, IHS Markit said.

Expenses, inflation

The expenses of Indian private-sector companies continued to increase sharply in December, although the rate of cost inflation eased to the slowest since September.

Similarly, aggregate selling charges rose at the weakest pace in three months. For the fourth straight month, manufacturing firms signalled a stronger upturn in input costs than their services counterparts.

Conversely, charge inflation was more pronounced in the service sector than in the manufacturing industry.

Service providers reported a further increase in expenses during December. Anecdotal evidence highlighted higher prices for chemicals, food, fuel, medical equipment, office products, tools and transportation. Amid reports of rising expenses, prices charged for the provision of services in India increased at the end of 2021.

Manufacturers reported another monthly increase in overall cost burdens. The rate of inflation eased to a three-month low, but remained above its long-run average. Companies reported higher prices paid for a wide range of items, including chemicals, foodstuff, electronic components, metals and textiles.

Business confidence, outlook

IHS Markit said that business confidence improved among goods producers and service providers at the end of 2021. However, levels of sentiment remained well below their respective averages.

Business confidence in the services sector strengthened during December to a four-month high. “Services firms were generally confident that output would increase in 2022, but fears of new COVID-19 waves and price pressures somewhat hindered optimism,” De Lima said.

In the manufacturing sector, concerns over elevated price pressures hampered business confidence in December. Overall optimism remained below its long-run average, despite improving from November’s 17-month low.

“Manufacturers were optimistic that output would continue to increase in 2022, but business sentiment was somewhat tamed by worries surrounding the path of the pandemic, inflationary pressures and lingering supply-chain disruptions,” said De Lima.

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