Manufacturing and services PMI dips in Sept.

Higher input and labour costs seen on rupee depreciation

Manufacturing and services sectors slowed down in September according to the latest Purchasing Managers Index (PMI), with cost pressures seen due to higher input costs. 

The Manufacturing Sector PMI decreased to 54.1 index points in September from 58.2 index points recorded in August. The slowdown observed in manufacturing activities in September was mainly driven by the slowdown in new orders and production, especially in manufacturing of food and beverages activities, the Census and Statistics Department said.  

Respondents highlighted that they had to increase their prices during the period due to increase in input costs of imported raw materials with rupee depreciation. This led to a decline in demand for their products, which in turn resulted in a decrease in new orders and production. 

However, new orders and production of manufacturing of textiles, wearing apparel, leather and other related products, which are mostly export-oriented, improved during this period. Overall employment and stock purchases also slowed down. 

Meanwhile, lengthening of suppliers’ delivery time usually indicates that the economy is booming with expanding activities in the short run. However, in this instance, lengthening of suppliers’ delivery time was due to manufacturers’ intentional increase of the lead time with the expectation of rupee stabilisation. Thus, it does not indicate an expansion in economic activities. Overall, all the sub-indices of PMI recorded values above the neutral 50.0 threshold, signalling an overall expansion in September yet at a slower pace compared to August.

The Services Sector PMI declined to 53.0 index points in September from 57.0 index points recorded in August. This indicates that the services sector expanded at a slower pace in September, recording the lowest index value since survey began in May 2015. The slowdown in the services sector was mainly due to the significant slowdown of business activities in accommodation, food and beverage, wholesale and retail trade, health activities and other personal services sectors. The off-peak season for tourism and slowdown in import volumes were cited as the main reasons for the observed slowdown. New business growth also eased across financial services and insurance sectors. 

Employment levels expanded at a slower rate in September, which was partly due to slowdown in business activities. The service providers’ outlook on the three months of business activities strengthened, yet at a slower pace. Upward revisions to fuel prices, depreciation of the local currency and restrictions on imports were cited by respondents to have adversely affected their optimism. Prices charged of the services sector increased at a higher rate owing to upward revisions to fuel prices and depreciation of the local currency during the month. Expected labour cost in the services sector also increased during September.