Manufacturing and services PMIs contract in Aug. on virus resurgence

• Import impediments amid forex shortages and rising raw material costs add to woes of many

 The Purchasing Managers’ Index (PMI) for both manufacturing and services activities shrank in August as the virus began spreading again with brutal force, forcing the government to re-impose lockdowns which dealt a blow on wider economic activities. 

According to data released on Wednesday, the PMI for manufacturing recorded at 45.1 index points for August, plunging from a robust 57.8 index points recorded in July when the economy started making up for the lost output during the brief normalcy that returned after a month long lockdowns in June. 

Meanwhile, services PMI recorded a 46.2 index points for August, slumping from 55.7 index points in July as in-person activities such as restaurant dining, salon and grooming, weddings, entertainment and a host of other recreational activities just began to make a comeback from nearly three months long hiatus before curtains came down in August again. 

PMI is one of the mostly watched high- frequency indicators in an economy, which provides a close barometer of the overall health of its economic activities. Index value of over 50 indicates an expansion in an activity over the previous month while a value below 50 is a sign of contraction from the previous month. 

PMI and other real economic indicators such as the Index of Industrial Production (IIP) have behaved mostly in lockstep with the restrictions having to be imposed on economic activities from time-to-time to stem the spread of the virus.  The virus related restrictions generally have had a disproportionate bearing on services activities, which for a long time lagged manufacturing activities as observed from the monthly PMI data due to their need for close proximity to people in most instances. 

In comparison, the manufacturing activities largely escaped complete stoppage in work for prolong periods due to their mostly essential nature and they being the primary source of the country’s merchandise exports sector as they quickly acclimatised to operate under strict health guidelines to ensure work continuity amid adversity. 

This was reflected from the decline in new orders and production, mainly in manufacturing of food and beverages, furniture, and textiles and wearing apparel sectors, mostly linked to the local market conditions, which got disturbed by the lockdowns. 

Meanwhile, factory operations were also disrupted by the spread of COVID-19 among their employees. 
Further in August, marking the first time the recent foreign exchange woes featured in a PMI report, the manufacturers had cited they encountered difficulties when placing purchase orders and in settling foreign payments affecting the supply chain of raw materials and production schedules. 

Many respondents to the PMI survey had also highlighted the continuous increase in the cost of imported raw materials adversely affecting their profit margins. 

Meanwhile, in the services sector, declines in wholesale and retail trade, insurance, real estate and education sub-sectors weighed on the August index. 

However, transport sub-sector has recorded some improvement solely due to the growth in freight volumes while the financial services sub-sector also indicated an improvement despite the disturbances from the travel restrictions, in a telltale that exports and the banking sectors have largely weathered the restrictions in August. 

Meanwhile in a noteworthy development, employment has continued to fall as retirements and voluntary resignations in the services sector had surpassed the new recruitments in August, in a sign that the prolonged restrictions on most services activities have prompted some to switch vocations as has already seen in the restaurants and leisure sector since the onset of the pandemic.

This condition compounded by the less staff availability due to travel restrictions and growing COVID-19 infections among staff elevated the backlog of work in the services sector at a higher pace in August. 

Further the expectations for business activity for the next three months dropped in August, after rising for two consecutive months on, “extended travel restrictions and growing concerns with regard to import restrictions and its related adverse effects on business operations”.