Manufacturing and services activities expand in Sept. as PMI rebounds

• Businesses optimistic on future but express concerns over rising global commodities prices 
• Expectations for business in both manufacturing and services activities improve for remainder of the year

Despite the lockdowns, both manufacturing and services activities expanded in September from a contraction in August indicating that economic activities have mostly adjusted to operate safely under the guidelines, although rising global commodities prices and supply chain bottlenecks continued to weigh. 

Sri Lanka’s manufacturing Purchasing Managers’ index (PMI) reported an index value of 54.3 in September from 45.1 in August while services activities recorded a PMI of 52.2, up from 46.2 in the previous month. 

PMI is a closely watched gauge of the health of the economy and an index value of over 50 indicates an expansion in activity over month-on-month while a value below 50 indicates contraction. 

Manufacturing sector regained strength during September from new orders, and employment sub-indices stemmed predominantly from the textile & wearing apparel and food & beverage sectors as the former had received a large number of export orders in September with the normalisation of the economies in major export destinations, the Central Bank said citing some of the industry respondents who articulate in the monthly survey. 

As economies in the rest of the world are either re-opening or virtually re-opened fully in the case of the North America and Europe where most of the Sri Lanka’s textile & garments exports are sent to, they are ramping up orders to cater to their consumers venturing out after months long restrictions and also to stock up merchandise ahead of the yearend festive demand while getting around the shipping bottlenecks which have snarled their supply chains. 

Meanwhile, overall employment also increased in tandem, specially in textile & garment manufacturing as new recruitments resumed with the easing pandemic and the faster vaccination drive. 

However, the production and stock of purchases sub-indices remained closer to their neutral levels with a marginal contraction in September. 

Some of the respondents in food & beverage manufacturing have had to slowdown their factory operations due to lower availability of raw materials. They have highlighted the continuously increasing imported raw material prices, mainly due to the rising global commodities prices as a major concern. Suppliers’ delivery time has also lengthened in September. 

Meanwhile, the September services PMI has been driven up by increases in new business, backlogs of work and expectations for sub-indices activity. 

New business improvement came from transportation, which is entirely related to freight forwarding, financial services, education and telecommunication sub-sectors as international trade gained steam with increases seen in both exports and imports while the financial services functioned with least interruption as they were designated as essential support services to the rest of the economic activities while part of it was facilitated by the digitalisation. 
While the other two—education and telecommunication— benefitted from the online and digital pivot forced upon by the pandemic. 

However, business activities in other personal activities, wholesale & retail trade, human health activities and accommodation, food & beverage sub-sectors were largely affected due to the quarantine curfew that remained for the entire month as people cut down on inland travel, most in-person service activities were hampered and the demand conditions remained below par both as a result of the pandemic, food shortages and soaring prices. 

Employment sub-index continued to remain in the negative territory due to retirements and voluntary resignations amid low level of new recruitments, a condition which was seen throughout the pandemic as services industries became the hardest hit from the pandemic resulting in prolonged disruptions and thereby the layoffs and staff redundancies. 

While the expectations for business in both manufacturing and services activities improved for the remainder of the year, some correspondents have continued to express their concerns on the adverse effects on their businesses from the import restrictions and increase in input costs.