2 K-shaped recovery in manufacturing continues to be a concern

The biggest proof of this is seen in the large divergence between the manufacturing sector’s performance in the GDP statistics and the Purchasing Managers Index (PMI) for manufacturing. The latter is more likely to track formal sector activity while the GDP numbers are more representative of all activity, including that of the informal sector which consists of smaller firms. Manufacturing PMI was above the critical threshold of 50 – it suggests an improvement in economic activity compared to previous month – in all three months in the September quarter. However, the manufacturing sub-component of Gross Value Added (GVA) contracted by 4.3% on an annual basis in the September quarter. The latest manufacturing GVA number is the second consecutive sequential contraction in manufacturing activity in the economy. The fact that October PMI manufacturing came in at 55.3 whereas growth of eight core sector industries was just 0.1% suggests that the divergence in performance of various manufacturing firms might be continuing. To be sure, the service sector economy seems to be doing well as its various sub-sectors posted impressive growth in line with the services PMI numbers.