Decline in consumers’ purchasing power hits manufacturing sector

SL Purchasing Managers’ Index – February 2023

Manufacturing PMI recorded an index value of 42.3 in February, indicating a continued setback in manufacturing activities on a month-on-month basis. This setback was driven by subdued performance observed in New Orders, Production, Employment and Stock of Purchases.

The decline in New Orders and Production was mainly driven by subdued demand observed in the manufacture of food & beverages, and textile & wearing apparel sectors. Many respondents representing the food & beverages sector mentioned that the decline in demand was mainly due to deterioration of purchasing power of the consumers.

However, they expect demand to increase on a month on month basis, targeting the festive season in April. Further, many manufacturers mentioned that the latest round of electricity tariff hike adversely affected their cost structure. Meanwhile, Employment and Stock of Purchases also continued to decline in line with the decline in New Orders and Production. It was observed that the manufacturers maintained material stock inventory at a minimum level, considering subdued demand conditions and the declining trend of global commodity prices, freight and exchange rates. Further, Suppliers’ Delivery Time remained unchanged at the previous month’s level.

Expectations for manufacturing activities for the next three months indicated an improvement, anticipating an increase in demand and production targeting the upcoming festive season, despite the adverse impact of the decline in disposable income.

Services sector PMI dropped to an index value of 48.7 in February 2023 indicating a deterioration across the servicessector. This was driven by the declines observed in New Businesses, Business Activities, Employment and Backlogs of Work.

New Businesses declined in February 2023 compared to January 2023, particularly with the decreases observed in transportation, insurance and postal and courier sub-sectors. Business Activities in the services sector declined in February 2023 after six months of continuous growth. Accordingly, business activities related to wholesale and retail trade sub-sector continued to deteriorate amid subdued consumer demand driven by diminishing purchasing power. Further, transportation sub-sector also continued to decline due to drop in freight volumes.

Meanwhile, human health, insurance and postal and courier subsectors also showed decreases during the month. Nevertheless, financial sector continued to improve with the improvements in deposits.Employment continued to decline in February due to resignations, migrations and retirements occurred during the month. Meanwhile, Backlogs of Work also decreased during the month in line with the reduction in new businesses.

Expectations for Business Activities for the next three months improved in February amid increase in tourist arrivals, upcoming festive season and expectations on greater economic stability. Nevertheless, some respondents expressed their concerns over shrinking margins in line with high taxes and electricity tariff and subdued demand due to decline in disposable income. (CBSL)