latest Purchasing Managers’ Index (PMI) for India’s manufacturing sector. And the Service Business Activity Index for the broad services sector of the economy from S&P Global shows a softening of momentum in economic activity. Its survey of nearly 400 manufacturers showed output growth at major private-sector factories decelerated marginally last month, with the June PMI reading declining from 58.7 in May to 57.8. On the services front, the index indicated expansion in output that fell to a three-month low, with the transport, information and communication sectors registering a gradual deceleration in activity. The soft readings of the manufacturing and services indices for June can be largely attributed to their multi-year peaks in May and April respectively, especially when the underlying components of the index are viewed separately. While the manufacturing PMI rose to a 31-month high in May, the services index recorded its highest seasonally adjusted figure in nearly 13 years in April. Data for June showed that new orders at factories, which account for about 30% of the manufacturing PMI weighting, rose at the strongest pace in 28 months, while demand and higher labor costs lifted inflation – the measure of manufacturers’ finished goods. Rate of rise in prices – at the highest level in 13 months. Similarly, service providers saw a rapid expansion in new business penetration, indicating demand remained strong and raising companies’ confidence in growth prospects in 2023 to an all-time high.
At first glance, the findings of the S&P Global survey should reassure policymakers that the inflation-battered Reserve Bank of India’s interest rate hike at the end of the last fiscal year still hasn’t dented domestic demand for manufactured goods and services. . However, the PMI survey panel does not include MSMEs, which collectively are estimated to contribute more than a third of the gross value added generated by the manufacturing sector. The absence of data on the MSME segment, which is a key pillar of manufacturing employment, means that it can be risky to estimate the overall strength of job creation in the formal economy, relying largely on the PMI as an indicator. While surveys from S&P Global point to further strengthening of private sector employment, with manufacturers posting a stronger expansion in jobs than service providers, CMIE data shows the unemployment rate rose to 8.5% in June from 7.7% in May. % Has occurred. Policymakers will also need to watch the upward trend in output prices of manufacturers and service providers, given that the resurgence in food inflation may undermine the RBI’s efforts to moderate inflation expectations and ensure growth-supporting price stability. There is a danger of weakening.