Factory Output Deteriorates, More Pain Ahead - Chart Of The Day 10 December 2016 - Equitymaster
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Factory Output Deteriorates, More Pain Ahead

On This Day - 10 December 2016
« Factory Output Deteriorates, More Pain Ahead

The demonetisation has disrupted everything- the service sector, manufacturing sector and the farm economy. Even though one would argue it is too early to judge, but a basic analysis suggests painful times ahead.

The best way to analyze and understand any macro situation is to follow the headline numbers for the economy.

Yesterday, Central Statistics Office (CSO) released data on industrial output for the month of October 2016.

The industrial production output for the month declined by 1.9% YoY. This was up 9.9% YoY in the same month last year. After a decline for consecutive two months, it had grown 0.7% YoY for the month of September.

The disappointing numbers were due to decline in manufacturing sector (down 2.4% YoY), mining (down 1.1% YoY) and capital goods sector (down 25.9% YoY).

Mind you, these disappointing numbers are pre-demonetisation.

Now, with the overall sentiments being low across all the sectors, the business activity in India is expected to slow down for next few months. The major contributors to the industrial output like capital goods and manufacturing are expected to face major hiccups. With these numbers bleeding, we expect to see an extended adverse impact on the India's job market as well.

Yesterday, my colleague Tanushree wrote interesting follow up on the destruction of jobs due to demonetisation:

    And as per estimates, demonetisation will render another 400,000 jobless in a few months. Hindustan Times arrived at this number based on estimates by top headhunting companies in India. Ecommerce, real estate, and infrastructure are expected to shave the most jobs. But mind you, this number is just from the organised sector. It does not include the lakhs of jobs already being lost in the unorganised textile, gems, and jewellery sectors.

    The government will likely be busy making currencies available and offering digital payment sops for months. Schemes like National Skill Development, which were supposed to create millions of jobs, are now on the backburner.

    So the pain of demonetisation will not be felt on consumption growth until the 30th of December 2016. Consumption demand is bound to stay paralysed for much longer. It is not only the cash crush and the suppressed demand that will weigh heavily on consumption. The loss of jobs and underemployment will also hurt.

Data Source:tradingeconomics.com, CSO

This Chart Of The Day was published in The 5 Minute WrapUp - Demonetisation Could Be the Best Thing to Happen to These Stocks
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