Services PMI at 4month low of 55.5 in July

Higher prices impacted the service sector as the Purchasing Managers’ Index (PMI) slipped to 55.5 in July from 59.2 in June. This is its lowest in four months. Also, jobs showed negligible growth.

On Monday, manufacturing PMI surged to an eight-month high of 56.4 in July. While manufacturing has a share of 14.4 per cent in Gross Value Added (GVA), share of services is around 55 per cent. Like manufacturing, services PMI is prepared by S&P Global on the basis of responses from 400 service sector companies. The sectors include consumer (excluding retail), transport, information communication, finance, insurance, real estate and business services. Index above 50 shows expansion while below 50 means contraction.

A report accompanying the PMI said recovery in the Indian service sector lost momentum in July as weaker sales growth and inflationary pressures restricted an upturn in business activity. While marketing efforts underpinned another rise in new work intakes, competitive pressures and unfavourable weather dampened demand. That said, the weaker recovery was supplemented by retreating price pressures. Input costs increased at the slowest rate since February, while output charges were hiked to a weaker extent than in June.

Still, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, finds many positives in the latest results. Business activity continued to rise strongly, with a similarly robust uplift in new business as the offering of new services and marketing efforts bore fruit. “There was, however, a noticeable loss of momentum for the Indian service economy as demand was somewhat curtailed by competitive pressures, elevated inflation and unfavourable weather,” she said.

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Both output and sales increased at the weakest rates for four months. “In line with concerns that economic growth has weakened as we enter the second fiscal quarter, service providers signalled subdued confidence towards the medium-term business outlook. Only 5 per cent of panellists forecast output growth over the course of the coming 12 months, while 94 per cent predict no change from present levels,” she said.

Based on the survey, the report found a negligible increase in service sector employment across India. The rate of job creation was fractional and broadly similar to June. The vast majority of firms left payroll numbers unchanged amid a lack of need to raise workforces. Indeed, “capacity pressures remained only mild, with the average level of outstanding business rising at a slight pace that was the weakest in three months,” it said.

Services companies reported a further increase in their average expenses during July, with food, fuel, materials, staff, retail and transportation cited as the key sources of inflationary pressures. Input costs rose sharply, though at the slowest pace in five months. “The subtle easing in cost inflationary pressures to a five-month low was also welcomed by services firms struggling to preserve margins, and contributed to a softer rise in prices charged. Yet, survey participants again reported considerable strain from food, fuel, input, labour, retail and transportation costs,” De Lima said.

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