Divergence between the PMI indices for manufacturing and services, and the actual data (growth rates) and IIP figures will continue since the nature of these indicators is different
The Purchasing Managers’ Index (PMI) for manufacturing in the month of February is at a year high of 52.5 compared with 51 in April ‘13. On the other hand, the GDP estimates released last week suggested that the manufacturing industry slowed down by -1.9% in Q3 FY14 compared with the growth of 2.5% in the corresponding quarter of last fiscal.
Likewise, the PMI services index for the month of February stands at a low of 48.8 maintaining its deterioration for the eighth consecutive month. However, the services industry emerged as one of the strong performers in the recent estimate of GDP growth in Q3 FY14, points out a research note.
Are we today facing severe stagnation or are we facing a contradiction due to the indicators selected for analysis? This is the dilemma for analysts of the Indian economy. According to CARE Ratings, divergence between the PMI indices for manufacturing and services and the actual data (growth rates) released under the GDP estimates and IIP figures will continue since the nature of these indicators is different. The PMI captures in a way the level of confidence or perception based on a comparison over the immediate previous period, while growth rates are over the same period of the previous year thus adjusting to an extent the seasonal component. Each of these concepts has their own uses but the PMI may not be taken to be reflective of the growth in the concerned sector.
Growth in the services sector is high, as revealed in the quarterly estimates of GDP. Please see table below:
According to the research note, the PMI services index has remained below 50 from July 2013 onwards. The index has fallen from 50.7 in April ’13 to 48.8 in February 2014. The index below 50 indicates that the services sector has witnessed negative growth based on the responses by the private companies. Please see chart below:
In contrast, there is stagnation in the manufacturing sector, as can be seen from the charts below:
The sluggish growth in FY14 is a result of weak consumer demand, and low investments partly due to the high interest rates maintained by RBI (Reserve Bank of India) in its bid to fight inflation. Further, manufacturing sector having recorded negative growth for the last three consecutive months vis-à-vis the same time window in FY13 is indicative of the stagnation the manufacturing industry is currently encountering.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
