Services PMI: Unlock 1.0 brings some relief but revival far away

Andrew Cummings
June 3, 2020

The numbers in April and May point to an extreme drop in services activity across India, mainly due to the nationwide lockdown imposed to prevent the spread of the virus.

A reading below 50 indicates a contraction.

The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers' delivery times (15%) and stocks of purchases (10%).

Manufacturing conditions in countries across the region all rebounded in May from the record lows recorded in April, but still remained below 50. Malaysia reported a marked improvement to 45.6 last month from 29 in April, followed by Vietnam's 42.7, Thailand's 41.6 and Myanmar's 38.9. Other provinces shifted to a more relaxed quarantine, which allowed more businesses to reopen. A silver lining in the gloomy data were employment conditions as the rate of job shedding eased from April, when the drop in staffing levels was the sharpest in more than a decade. IHS Markit, which compiles this measure in more than 40 countries, said May's manufacturing PMIs for the eurozone, United Kingdom and USA are 39.5, 40.6 and 39.8 respectively. Companies were also reluctant to increase output as new orders remained weak.

Although slightly improved from April sub-indexes tracking domestic and foreign demand remained perilously close to zero, leading firms to reduce their workforce at the second sharpest pace since the survey began late 2005.

"May survey data revealed that production volumes are falling at an even faster rate than in April", said Joe Hayes, economist at IHS Markit, which compiled the survey. Export sales in the UAE fell in May, but at a softer rate, while the lifting of travel restrictions helped deliveries, he added. Meanwhile, on the price front, both input costs and output charges were low as suppliers and manufacturers themselves offered discounts in an attempt to secure orders.

"Price pressures began to inflate in May after marked decreases during March and April".

"While easing lockdown measures will be positive for the economic environment, it is clear that dislocations will remain", Hayes said.

Taiwan's manufacturing activity also fell in May. Anything above 50 signals growth, while anything below means contraction.

Also, there are some sombre signs in the services PMI reading.

This bounce was expected as lockdown restrictions were eased during the second and third phase.

AxiCorp global chief market strategist Stephen Innes said the ringgit continued to feed off China economic optimism after the PMI data came in well at 50.7 which signalled an expansion in activity.

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