Economy

New business helps services sector expand in August

Shishir Sinha New Delhi | Updated on January 22, 2018

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Telecom service providers, hotels propel PMI to 51.8

After the disappointment on the manufacturing front, the services sector brought some cheer by showing an upturn in August with the Nikkei Purchasing Managers’ Index (PMI) for services rising to 51.8 from 50.8. An index above 50 means expansion and below 50 implies a contraction.

A higher index points to a faster, although modest, expansion in output. In services, growth was recorded in three of the six monitored categories — hotels & restaurants, post & telecommunications and other services. A key reason for the increase in activity was the rise in new work, it said.  The index, calculated on the basis of responses from purchasing managers of 350 private sector companies across six services sectors, is compiled by Markit, a financial information service provider.

Pollyanna De Lima, economist at Markit, said economic growth was boosted by the improvement in the services sector. While activity and new business across the sector accelerated in August, moderation in growth rates was noted at goods producers.

Reluctance to hire

She said one glaring feature in the latest PMI dataset was the situation in the labour market wherein both manufacturers and service providers saw payroll numbers unchanged in August, as there has been no significant job creation since early 2014. While the path ahead for the economy looks unclear, the reluctance to hire persists among firms.

Rate cuts on cards

“On the monetary policy front, the Reserve Bank of India advocated a wait-and-see approach to setting the benchmark rate in August. With growth remaining relatively weak and survey evidence pointing to a lack of inflationary pressure, further rate cuts are on the cards,” said De Lima.

The decline in manufacturing PMI to 52.3 in August from July’s six-month high of 52.7 affected the composite PMI. However, growth in the services sector propped this to 52.6 in August, from 52 in July.

According to experts, higher demand coupled with capacity improvements and increased marketing contributed to an expansion in new business.

Despite quickening since July, the rate of growth was moderate. While new manufacturing work rose at a weaker pace than in July, the overall growth outpaced that of its services counterpart.

New business across the private sector expanded at a moderate pace, the quickest since March.

Published on September 03, 2015

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