service sectors & Manufacturing continue expansion in July

According to the Sri Lanka Purchasing Managers’ Index (PMI) released by the Statistics Department of Central Bank on Thursday, both manufacturing and services sectors expanded last month further recovering after the April 21 terrorist attacks. Manufacturing activities expanded further at a higher rate in July 2019, recording an index value of 55.7 which is an increase of 1.8 index points, compared to June 2019.

The expansion in manufacturing PMI is mainly attributable to the significant increase in New Orders and subsequent increase in Production, especially, in manufacturing of food & beverages sector. The increase in new orders was mainly due to the gradual recovery of the economy from disruptions related to Easter Sunday attacks.
Meanwhile, Employment increased at a slower rate during the month of July although many respondents in the textile and apparel industry highlighted that they experienced higher rate of labor turnover during the month. The Stock of Purchases increased significantly with the expansion of New Orders and Production as well as a precautionary measure to face possible disruptions during the upcoming election period together with festive season demand.
Further, Suppliers’ Delivery Time lengthened to the neutral level indicating the same delivery time as the previous month, mainly due to the normalization of tight security measures deployed after the Easter Sunday attacks. All sub-indices of PMI Manufacturing, except Suppliers’ Delivery Time which was on a neutral level, exceeded the threshold of 50.0 (neutral) signaling an overall expansion in manufacturing activities during the period under review.

The services sector continued to expand in July 2019, underpinned by accelerated expansion in New Businesses, Business Activity and Expectations for Activity compared to June 2019. This indicates a further recovery of the services sector after the Easter Sunday attack. Business activities of wholesale and retail trade; accommodation, food and beverage; financial services; and transportation sub-sectors expanded for the second consecutive month in July 2019. Service providers’ optimism on the next three months business outlook strengthened to a 29-month high, as expectations for activity expanded across most of the sub-sectors.
However, Employment recorded a deterioration compared to the previous month as there is a time lag for filling vacant positions and replacement of labor-intensive work by technology. Prices Charged in the Services sector declined in July 2019 due to the reduced lending rates (prices charged) in parallel to the deposit rates reductions in financial services sub-sector meanwhile, Expected Labor Cost increased at a higher rate in July 2019 due to routine salary increments.

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