Economic Indicators In June: A Mix Of The Good And The Not-So-Good
In charts: How high frequency economic indicators fared in June.
A number of real economy indicators turned the corner in June, after slipping in May due to the impact of the second wave of Covid-19 infections. Not all indicators improved though, which elevated demand for rural work, in particular, suggesting that pain in the economy persists.
The Nomura India Business Resumption Index, a weekly tracker of the pace of economic activity normalisation comprising of mobility, power demand and labour force participation rates, indicated that business resumption is rebounding quicker from the second wave than from the first.
The index picked up for a sixth consecutive week to 91.3 for the week ending July 4, from 86.3 the previous week, according to a research note by Nomura on Monday. With that, it's now only 8.7 percentage points below pre-pandemic levels and 3.6 percentage points below pre-second wave level, the note said.
The State Bank of India's business activity index also rose to 91.8 for the week ended June 28, from 78.3 the preceding week. Various indicators show improvement in economic activity in June, with robust recovery visible in weekly vegetables’ arrival and revenue collections by regional transport organisations. There is, however, a slight dip in the labour participation rate, wrote Soumya Kanti Ghosh, group chief economic advisor at the SBI, in a research note.
Electricity Demand: Record High?
Average demand for electricity met during evening peak hours rose by 8.3% in June 2021 on a monthly basis after a contraction of 11.2% for May 2021.
"The rise in electricity demand could be because of the summer heat. But, in India, since this data is not available separately for residential and industrial demand, it's hard to determine the reason for the rise in demand," said Ghosh. "Though the relation between electricity and economic activity is non-linear, the rise in demand can be an indication that activity is opening up."
Composite PMI: 11-Month Low
The strength in electricity output contradicts the indications from the purchasing managers index, which suggests that both services and manufacturing activity contracted in June.
The Composite PMI Output Index fell to 43.1 in June from 48.1 in May. That’s the sharpest rate of reduction since July 2020. The decline was led by services though manufacturing too fell.
While manufacturing PMI was at 48.1, services PMI declined to 41.2 in June. A reading below 50 indicates contraction.
E-Way Bills
Data for E-way bills generated suggests that the movement of goods picked up pace in June. This is supported by factory gate data from the automobile sector, which suggests that at least in that sector, output rose.
E-way bills generated climbed to 4.75 crore in June as per data up to June 27, compared to 4 crore in the previous month.
The number of bills generated is still well below the peak in March.
Truck Rentals
In sync with the indication of improved movement of goods, truck rentals rose by 13-15% for major routes in over the past month after having fallen by 6-8% last month, according to data shared by the Indian Foundation of Transport Research and Training.
The rise in truck rentals, however, also reflects higher diesel prices.
"A jump in foreign trade and factory output, along with a pick-up in infrastructure construction and road projects, led to an increase in fleet utilisation," said SP Singh, senior fellow and coordinator at IFTRT.
Foreign Trade
India’s merchandise exports rose to a record high in the first quarter of FY21, according to a press release by the ministry of commerce and industry.
In June, while merchandise exports rose to $32.46 billion compared to $32.27 billion in May, imports rose to $41.86 billion from $38.55 billion in the previous month.
"Non-oil imports in June picked up from May levels as economic activity started to normalise with easing lockdowns," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. "Domestic demand lags behind global activity levels with non-oil import growth much lower than non-oil exports, for now."
MGNREGA: Demand At 1-Year High
Labour markets remain the weakest part of the economy.
Demand for work under the government’s flagship employment guarantee scheme rose to the highest since June last year.
Over 3.5 crore households demanded work under the Mahatma Gandhi National Rural Employment Scheme in June 2021 compared to 2.8 crore households last month. However, work was provided to 1.9 crore households in June, compared to 1.7 crore households last month.
As such, the demand-supply gap for the scheme was the widest since April last year.
Unemployment Rate Falls; Labour Participation Yet To Recover
Unemployment rate, as measured by CMIE, eased to 9.1% in June, compared to 11.9% in May 2021. Urban areas continued to record higher unemployment in comparison to rural areas.
India’s problem is less with the unemployment rate and much more with the the labour participation rate and the employment rate, said a note by Mahesh Vyas, head of CMIE. The lasting impact of Covid is a much smaller worker participation rate in India, the note dated June 28, said.
The labour participation rate is likely to average 40% in June, similar to April and May 2021. This is lower than it's pre-Covid average of 42.7%, according to Vyas.