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Business News/ Markets / Mark To Market/  Upsides in Sep manufacturing PMI data seem too good to last
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Upsides in Sep manufacturing PMI data seem too good to last

Even if festive sales meet expectations, poor job prospects would weigh on overall economic revival

While the survey report says that the rate of expansion in new business inflows was fastest since early-2012, it also pointed out that employment has now decreased for six consecutive months. (Mint)Premium
While the survey report says that the rate of expansion in new business inflows was fastest since early-2012, it also pointed out that employment has now decreased for six consecutive months. (Mint)

Manufacturing sector activity soared to its highest in over eight years in September, with the seasonally adjusted headline IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) touching 56.8 from 52 in August. A reading above 50 indicates expansion and below the threshold indicates contraction.

Sub-indices tracking output, new orders, and purchase of raw material improved. In fact, the rate of expansion in new business inflows was the fastest since early 2012, the survey showed. Moreover, exports bounced back to the expansion zone after contracting for six months since the pandemic broke out in March. Consequently, business confidence among Indian manufacturers regarding future output improved.

However, given a couple of downside risks, it is doubtful how much of this will sustain, and it may be too early to cheer the positives.

Grim jobs scenario
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Grim jobs scenario

Domestically, expansion in new business inflows could be in anticipation of better sales in the upcoming festive season. But the survey also points out that employment decreased for six consecutive months. With continuing uncertainty on incomes, it remains to be seen how the festive demand pans out. Even if festive sales meet expectations, poor employment prospects would weigh on recovery in the following months, said economists.

“Sustenance of the pace of demand recovery post the festive season is crucial. Persistence of demand improvement hinges on improved employment (job cuts are still happening) outlook, vaccine approval and availability of the vaccine for the population at large. Policy response to minimize the adverse impact of covid on the economy will be an important determinant too," said Anubhuti Sahay, an economist at Standard Chartered Bank.

Although the economy is reopening, India is far from getting a grip on the pandemic. Data shows that India’s covid-19 count crossed 6.3 million on Thursday. Globally, India is among the top three countries fighting rising caseloads.

Caution needs to be exercised on new export orders. Apart from China, the September PMI readings for many south east Asian nations is not encouraging. There are concerns of a second wave of coronavirus in some developed countries, especially in Eurozone. In short, the buoyancy in exports may be short-lived.

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Published: 01 Oct 2020, 12:19 PM IST
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