Services sector employment generation slows as industries adopt automation, Artificial Intelligence

The Purchasing Managers’ Index (PMI) decelerated in February from a month ago in both manufacturing and services sectors as automation and Artificial Intelligence (AI) were seen fast changing the dynamics of the latter. 

The manufacturing sector PMI languished at an index value of 50.6, down from 54.4 in January as new orders decreased and production slowed “specially in manufacturing of textiles, wearing apparels, leather and related activities”, the Central Bank’s Statistics Department said.

“This decline was mainly due to the lesser number of working days in February,” it added. 

The services sector PMI also followed suit with its index value decelerating to 53 from 55.8 in January underpinned by the slower expansion in new business, business activity, employment and expectations for activity during the month, which partly resulted from many people taking a wait-and-see approach due to the uncertainty in the business climate. 

“Further, expectations in the wholesale and retail trade sub sector deteriorated due to new vehicle duty reforms introduced in the Budget 2019”, the Statistics Department said. 

PMI is one of the primary indicators of the health of an economy and it gauges how dynamic an economy can be. 

An index value above 50 typically indicates an expansion of economic activities, while an index value closer to 50 indicates growth, but at a slower pace. 

In an interesting finding during February PMI survey was that automation and adoption of AI are fast shaping the services sector and having a special bearing on the employment generation by the sector. 

According to the Statistics Department, the survey respondents have predicted a decline in the growth in the services sector employment in the future due to industries fast adopting these new dynamics. 

The employment generation sub-index under the service sector PMI in February recorded a steep fall from 57.4 index points to 51.1 points between the 
two months. 

Meanwhile, the declaration in the overall services sector PMI in February came after two consecutive months of acceleration in the index value. 

“The expansion in business activities was mainly seen across financial services and transportation sub sectors due to technology based improvements and expansion in export volumes,” Statistics Department said.

Sri Lanka’s services sector share to the overall economy has plateaued at around 60 percent levels.  However, a slight improvement in employment was experienced with the recruitment of new employees to enhance business activities for upcoming seasonal demand. Sri Lanka presented a budget on March 5 which is expected to stimulate a new breed of entrepreneurs and foster a vibrant manufacturing and services economy targeting the export market.