CEM INCHES DOWN IN AUGUST ON WEAK EMPLOYMENT, TRADE DATA

CareEdge Economic Meter (CEM) inched lower to 6.6 in August from 7.0 in July primarily on account of weak employment and trade data. Both merchandise exports and imports witnessed a sequential decline in August while the unemployment rate surged past 8%. Though the score was also lower compared with the same month last fiscal, we should note that the August 2021 score was inflated due to post-lockdown pent-up demand. So far, the trend has been steady this fiscal with CEM being range bound between 6-7.

Indicators Which Led the Score Lower

• The unemployment rate in August soared to a year-high of 8.3% from 6.8% in July on account of a rise in both rural and urban unemployment. The rise in urban unemployment could have been fuelled by growing economic uncertainties amid pressured margins of firms, whereas rural unemployment has surged because of the spatially skewed monsoon that has impacted sowing activities in rural areas.
• As per the provisional estimate, the merchandise exports (absolute) came in at a 9-month low of USD 33 billion on account of a decline in both petroleum and non-petroleum exports. Demand slowdown in India’s major trading partners has weighed on India’s exports.
• Merchandise imports, though still above USD 60 billion, also witnessed a 7% sequential decline in August reflecting the impact of easing commodity prices. Import of crude oil and petroleum products declined by 16.7% in August compared with the previous month.

Indicators Which Restricted the Downside

• Services sector rebounded in August with services PMI rising to 57.2 from a four-month low of 55.5 in July. A stronger expansion in new business and easing cost pressures has benefitted the services sector. Manufacturing PMI too remained in the expansionary zone at 56.2 in August boosted by strengthening demand conditions.
• E-way bill registrations rose to a record high of 7.8 crore in August due to an uptick in economic activity while GST collections remained above Rs 1.4 lakh crore for the sixth consecutive month.
• Credit offtake remained strong and expanded by 15.3% (y-o-y) during the fortnight ended August 12.
• Healthy urban demand and easing fuel costs supported the registration of passenger vehicles in August. Two-wheelers registrations also picked up in August compared with the previous month.

Overall, the high-frequency economic indicators signalled a mixed trend in August. While the domestic macroeconomic fundamentals have exhibited resilience as reflected in an uptick in urban demand and improving business and consumer sentiments, external sector volatility continues to hamper the pace of economic recovery. Furthermore, labour market conditions continue to remain fickle due to uneven monsoon. It should be noted that the recovery in consumption has been majorly led by urban demand so far while rural demand continues to lag. Without a substantial improvement in rural employment conditions, the revival of rural demand will remain a challenge. This in turn will have a ripple effect on the recovery of other sectors too.

With easing commodity prices, a revival in the capex cycle and festive season demand, we anticipate employment conditions to improve going forward. Therefore, we can expect CEM to tread in the steady-state range in the coming months.

Note:
CEM tracks the state of the economy based on 14 high-frequency indicators. Each of these reflects a particular aspect of the economic activity in areas such as production, consumption, investment and employment. The changes are tracked and compared over the preceding periods both in terms of a single month and cumulatively. We revised the methodology slightly in August 2022, because of which the new CEM numbers are different.

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