Manufacturing slows down, services pick up in January

After zooming to a five-year high in December at 54.7, the Nikkei Manufacturing Purchasing Managers’ Index or PMI fell to 52.4 last month as the base effect wore off.

On the other hand, the services sector growth picked up during the same period as PMI climbed to 51.7 from 50.9 and lifted jobs, revealed the survey published by the Tokyo-based research firm on Monday.

Any number above 50 points denotes expansion and below that, it means contraction.

Aditi Nayar, principal economist at rating firm Icra, told DNA Money that the drop in the business activity in manufacturing last month was due to “normalisation in business” after a “catch-up” spurt in the sector in the past few months.

“There has been a lot of catch-up happening in manufacturing growth (after it saw contraction in the first half of the current fiscal). That is supposed to be normalising now,” she said.

According to her, the high manufacturing PMI that was seen in November and December was mostly due to the base effect.   

“We could have manufacturing growing at the same level through the fourth quarter (Q4) of the current fiscal. Auto production growth was 30%-plus in December. Clearly, that would not have sustained,” said the Icra economist.  

Nayar, whose rating firm is projecting GDP growth for the current fiscal to print above the Central Statistical Office’s (CSO) outlook of 6.5%, expected a moderate growth in manufacturing business volumes in Q4.

The IHS Markit report said the manufacturing easing last month was consistent with a “modest improvement in operating conditions across the private sector as a whole”.  And despite manufacturing volume slackening in January, new orders saw a rise for the third consecutive month.

“The latest survey data signalled that capacity constraints remained evident across both the manufacturing and service sectors, as the volume of outstanding business rose for the twentieth successive month. Higher backlogs partly reflected delayed customer payments for orders”, said the survey.

And even as improved demand conditions saw manufacturers raising “payroll numbers” for the sixth consecutive month, job creation slowed to the weakest since last October but remained above the series trend.

In contrast, the month witnessed the second-fastest rise in jobs in the service sector in over six-and-a-half years as new business grew sharpest since June last year.

Suchita Dutta, executive director of the Indian Staffing Federation (ISF), said the second half of the fiscal usually sees spike in job numbers in the e-commerce, healthcare and hospitality sector due to festive season.

Dutta, however, did not see any specific reason for the jump in job numbers in services sector last month.

“I don’t see any specific reason why jobs in this (information and communication) sector would pick up. One factor for any spurt (in jobs) in any sector is that it had not been hiring for many quarters and even if it hires some bit, there is a spurt. When a sector, which has been dormant for some time, starts hiring, then it shows very high job growth. Overall, if I look at the whole thing, I don’t see any spurt in noticeable manner in any particular sector in the service area,” she said.  

The Nikkei IHS Markit report said last month saw business activity and employment accelerate since December.

“The Indian service sector remained in expansion mode in January, driven by a renewed increase in new business. Growth rates for activity and employment accelerated since December but remained weaker than their respective long-run survey averages. Having been the strongest in four years in November, input price inflation stabilised at a relatively weak level in January, while businesses increased their charges at a slightly faster rate,” said the report.

Aashna Dodhia, economist at IHS Markit and author of the report, said despite continuation of “recovery” in demand and output in the service sector, its overall performance remained weaker than the long-run growth trend.  

“Input cost inflation across the service sector remained weak by historical standards, although service providers were able to pass on a greater proportion of cost burdens to customers,” said Dodhia in a statement issued by IHS Markit.

She saw GST as a “key constraint” to businesses. “Meanwhile, job creation accelerated to the second strongest in over six-and-a-half years, but, as firms struggled in receiving timely payments, the goods and services tax (GST) continued to be a key constraint to businesses and the service sector remained a laggard relative to its manufacturing counterpart.”