HinduPost is the voice of Hindus. Support us. Protect Dharma

Will you help us hit our goal?

HinduPost is the voice of Hindus. Support us. Protect Dharma
25.1 C
Varanasi
Saturday, October 23, 2021

Bharat’s services beats manufacturing, but risk still not over

Bharatiya services firms have outperformed manufacturers with the gradual reopening of the economy as the pandemic recedes, vast outreach of vaccination, improved mobility, expansion in new orders, rising sales growth due to improved customer footfall, and successful advertising due to increasing business activities.

The Purchasing manager’s index (PMI) saw a sharp rebound in Bharat’s services sector to 56.7 in August’21 from 45.4 in July’21, well above the market expectations of 48.5. While the PMI for Bharat’s manufacturing sector declined to 52.3 in August‘21 from 55.3 in July’21, according to the data released by IHS Markit. It can be clearly observed that the business output in service sector in Bharat has shown a remarkable progress beating the output coming from manufacturing sector for August 2021.

What drives PMI?

There are various economic variables that go separately in determining services and manufacturing PMI for an economy. The common elements are – business activity, new business, new export orders, outstanding business, and output prices charged, input prices, supplier’s delivery times, stocks of finished goods, quantity of purchases, stocks of purchases, employment and future output.

Based on these variables, the business output through PMI either shows improvement, no change or deterioration in the industrial output.

PMI Trend

PMI indicates the business activity in the economy. PMI has a benchmark set at 50 points that reports no change in the business activity. PMI above 50 represents expansion zone for business activity and below 50 represents the contraction zone for the business activity for any economy.

Source – IHS Markit
  • In April’21, due to high probability of resurgence in the Covid cases, PMI for services sector declined to 54 compared to 54.6 in March’21. The services output growth softened while new orders continued to expand, unemployment was high, input cost inflation soared, and selling prices climbed up.

While manufacturing sector exhibited slight growth in PMI at 55.5 in April’21 over 55.4 in March’21. Both new export orders and output grew at slow pace. Unemployment was high. But, health sector saw an improvement.

Overall the business sentiment remained in expansion zone.

  • In May’21, services sector PMI declined to 46.4 as both output and new orders decelerated due to lockdown restrictions amidst 2nd wave of pandemic. Export orders fell as the external demand worsened due to business closures, and unemployment increased.

While, the manufacturing sector continued to reflect slowdown in May’21 induced by a harsh resurgence in Covid cases that softened the output at 50.8. Unemployment rose, lengthy supplier delivery times with weak vendor activity was observed accompanied with shortage of raw materials.

Overall the business sentiment was weak compared to April’21.

  • In June’21, services sector declined to 41.2 below market expectations of 48 amidst Covid cases. Output and new orders fell, external demand contracted, unemployment remained high but input cost prices eased to a 5 month low, and selling prices continued to rise.

While, the manufacturing sector contracted to 48.1 exhibiting deterioration in buying levels, output and new orders, and low job creation. Lengthy supplier delivery times, weak vendor activity was witnessed but input cost inflation eased.

Overall the business confidence was contracting.

  • In July’21, services sector showed some improvement to 45.4, although it was still below market expectations of 49. The output and new orders witnessed less contraction, employment contracted moderately, input cost inflation rose due to climbing fuel prices and prices of raw materials.

While, manufacturing sector returned to expansion territory to 55.3 due to better output, new orders, new exports, quantity of purchases and employment also rose marginally. Buying activity was positive and strengthened.

Business sentiment was weak in services due to pandemic, margins and inflation but in manufacturing sector the sentiment was strengthening.

  • In August’21, services output rose to expansion zone at 56.7 as the vaccination access improved, pandemic receded. Input prices increased due to rise in fuel prices, as a result output prices also increased but inflation rate softened pushing up the business sentiment upwards.

While manufacturing output dropped to 52.3 in August’21 compared to services sector although below market expectations of 55, indicates some softness in growth. Output and new export order growth was weak after a strong recovery observed in July’21. New export orders surged marginally, employment slipped back in August’21 after growing in July’21. Input cost inflation eased but selling prices increased to 3 month high.

Business sentiment strengthened in services sector but remained subdued for manufacturing sector due to Covid impact.

PMI Peer Comparison

Source – Trading Economics

We observe that Eurozone’s services PMI is the highest at 59 for the month of August 2021 compared to other countries. It was revised lower than the 15 year high that stood at 59.8 in July’21. In Eurozone, there have been growing new businesses, higher export demand growth, job creation maintained since July but input cost inflation hit a 13 year high while selling prices softened. Business confidence remains elevated despite sliding down in August month.

We observe that Japan’s services PMI has been the lowest amongst other countries that stood at 42.9 for August 2021 over 47.4 in July’21 clearly representing most contracting output in services sector since May’20 as the state of emergency was declared to combat the significant rise in Covid cases. Export orders shrank and new orders fell steeply. On an encouraging note, accelerating employment is creating increased demand. The business sentiment appears weak.

Source – Trading Economics

We observe that Eurozone has the highest manufacturing PMI across other countries at 61.4 for August’21, below 62.8 in July’21. There have been less capacity utilisation, lower production eased to 6 month low, but new orders and export business grew. Job creation has been modest from July’s all-time high. Despite the supply chain issues and increased input demand, input cost inflation remain subdued. Selling prices eased since January’20. Yet, the business sentiments appear in a comfortable expansion zone.

We observe that China has the lowest manufacturing PMI across other countries at 49.2 for August’21 being dragged lower than 50.3 in July’21. This was the first contraction in manufacturing activity since April 2020 induced by containment measures to curb rising cases of the Delta strain, supply chain issues, and high raw materials.

Output dipped in 17 months; new orders dropped for the second month falling steeply in 16 months, exports sales contracted for the first time since February. Also the buying levels fell after rising in July and employment was down fractionally. Overall the sentiment exhibits contraction for August’21.

Conclusion

The business sentiment is not stable and would continue deriving fluctuations from its underlying indicators, until we are assured that the pandemic threat would not return again which otherwise would cause damaging impact to our PMI figures not just in Bharat but globally also. The government shall play a vital role in mitigating the risk of 3rd wave with faster roll out of vaccinations to fast track the recovery plan for Indian economy.

References – Trading Economics, IHS Markit

IHS Markit, an information provider headquartered in London has released the Purchasing managers index for 30 countries for August 2021 based on a survey that covers only private sector companies but not the public sector. The survey is based on some key economic variables that goes separately in determining the manufacturing and services sector output.


Did you find this article useful? We’re a non-profit. Make a donation and help pay for our journalism.
HinduPost is now on Telegram. For the best reports & opinion on issues concerning Hindu society, subscribe to HinduPost on Telegram.

Related Articles

Criti Mahajan
An MBA graduate in finance with 5 years of working experience in the financial services space. An enthusiastic research writer inclined towards understanding economics and policy making with an experience of diversified writing on professional platforms in economics. A self-starter, perseverant and an ardent learner.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest Articles

Sign up to receive HinduPost content in your inbox

We don’t spam! Read our privacy policy for more info.