Little cheer on the jobs front in Composite PMI

A reading above 50 indicates expansion. It should be noted that the Composite Output Index is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.

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With uncertainty over new variants of coronavirus and inability of companies to pass on the burden of increased cost inflation, economic activity in both sectors failed to make a sustainable recovery. The subdued business environment had a direct fall out on employment.

The PMI survey report pointed out that the December data showed renewed job shedding in the services sector though the rate of contraction was marginal.

Also, around 96% of the companies surveyed left payroll numbers unchanged in December compared with November.

“Firms generally suggested that employment levels were sufficient to cope with current workloads,” said the PMI report. At the Composite level, the December data pointed to a broad-based decline in employment with the jobs sub-index decreasing for the first time in four months. In fact, data provided by IHS Markit showed that this index has slipped below the crucial 50-mark and was in the contraction zone in December.

According to Rahul Bajoria, chief India economist at Barclays, “Compared with the last 12 months, business activity has improved in both manufacturing and services sectors; however, we haven’t returned to pre-covid levels as far as employment is concerned. The overall stock of people employed is still sub-par. If we look at trends in rural and urban job markets using the CMIE data, it also indicates stress in the labour market. So, there is a fair amount of slack with respect to employment and the outlook largely depends on how the situation pans out with new covid variants.”

“While we believe that fears of a full-fledged lockdown are behind, lack of clarity on the seriousness of new variants has kept companies on the side lines on their employment and investment decisions,” Bajoria said.

Some economists also point out that the PMI survey captures data for companies which are largely in the formal sector and that job losses in India’s informal economy, which is large and fragmented, could be much higher. Simply put, while the headline numbers may show improvement, employment is likely to remain a pain point at least in the near-term.