Manufacturing and services activity plummets in October

Both manufacturing and services sectors contracted significantly in October from their positions in September following the detection of the Minuwangoda Covid-19 cluster on 4 October and the resultant second wave of the pandemic.

According to the manufacturing and services Purchasing Managers’ Indices (PMIs) released by the Statistics Department yesterday (25), manufacturing PMI declined 19.5 index points compared to September 2020 while the services PMI saw a decrease of 12.5 index points compared to September 2020. Accordingly, manufacturing PMI declined to 40.3 in October 2020 with a significant decline in production, new orders, employment, and stock of purchases sub-indices, particularly in the manufacturing of wearing apparel and food and beverages sectors. The production of all manufacturing sectors declined significantly together with the decline of employment in October.

Many respondents in the manufacturing of food and beverages and textiles and wearing apparel sectors highlighted that their factory operations were largely disrupted due to the localised curfew imposed during the month to contain the spread of the pandemic, the Statistics Department said.

“Further, they mentioned that some employees were reluctant to report to work due to fear of the pandemic while many employers refrain from employing their full workforce following health authority guidelines, causing a significant reduction of availability of employees,” the department added.
Further, the stock of purchases sub-index also decreased at a higher pace in line with the decline in production and new orders, as well as increased uncertainty. The suppliers’ delivery time sub-index lengthened at a higher pace, where many respondents highlighted that they experienced a considerable delay in Port/Customs clearance. The sub-index of expectations for manufacturing activities for the next three months declined significantly due to the ongoing second wave of the spread of the Covid-19 pandemic, particularly in the Western Province.

Services sector PMI declined to 41.8 in October, underpinned by the declines observed in all sub-indices of services PMI, except for the index of backlogs of work. New businesses, particularly in financial services and insurance sub-sectors, declined in October 2020 compared to the previous month. Business activities also declined in October 2020 mainly in wholesale and retail trade, transportation, accommodation, and food and beverage sub-sectors with the localised curfew imposed to contain the spread of the second wave of the Covid-19 pandemic. Further, business activities related to insurance and educational services sub-sectors also saw declines during the month.

The Statistics Department noted that 59.3% of the respondents cited that the decline in business activities is attributable to the negative impact of the second wave of the Covid-19 pandemic on demand.
The department also highlighted the impact of the second wave on the workforce.

“As cited by several respondents, backlogs of work increased in October 2020 with disruptions to their business activities due to the absence of employees who resided in lockdown areas. In addition, the reluctance of employees to report to work and unwillingness of employers to employ their full workforce due to pandemic-related issues have also affected the smooth operation of business activities during the month. Employment declined in October 2020 owing to non-extension of work agreements of the contract employees amidst a halt in new recruitments,” it said.

Meanwhile, expectations on future business activities also declined in October 2020, largely due to the pessimism prevailing with the country experiencing the second wave of the Covid-19 pandemic.