October PMI: India’s services sector slips to 58.4, manufacturing at 55.5

Following the manufacturing sector, the services sector, too, showed some slowdown in October as Purchasing Managers’ Index (PMI) dropped to 58.4 from 61 in September. New job opportunities, too, lost its pace.

The services sector has over 54 per cent share in Gross Value Added, while manufacturing has around 14 per cent. This means more than two- third of economic activities have recorded subdued performance. However, the expectation is that these will improve in the coming months as festive demands followed by marriage demand will pick up in November and in parts of December.

Talking about the performance of the services sector, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said that this sector continued to register impressive growth despite the increases in business activity and new work intakes softening from September’s over 13-year highs. “Several companies managed to secure new contracts, but some mentioned subdued demand for their services and competitive conditions,” she said.

PMI is prepared based on responses by purchasing executives of 400 companies from various sub-sectors. An index above 50 means expansion, while a below 50 index indicates contraction.

The survey findings indicated that robust service demand continued to stimulate hiring activity. Similar to the trend for total sales, however, the rate of job creation lost steam. The latest rise was the slowest in three months.

A note issued along with Services PMI said that expansion rates softened, however, reportedly due to competitive conditions and price pressures. There were faster increases in input costs and output charges during October, with inflation rates outpacing their respective long-run averages. At the same time, a pick-up in inflation expectations dampened overall business sentiment.

Anecdotal evidence indicated that the securing of new work underpinned growth, favourable demand trends and positive market conditions. Competitive pressures and inflationary forces restricted the increase, according to surveyed firms.” the report said.

According to De Lima, inflationary forces in the Indian service sector intensified, primarily due to surging food, fuel and staff costs. Although survey participants passed these additional cost burdens on to clients, permitted by demand strength, the rise in charges could have triggered the deceleration in sales growth. Moreover, a pick-up in inflation expectations in October dampened business confidence,” she said.

On Wednesday, S&P Global Market Intelligence reported manufacturing showed slightly subdued performance in October as the Purchasing Managers’ Index (PMI) slipped to 55.5 as against 57.5 in September. Additionally, it also said not all companies are going for fresh hiring.

It was said that the survey’s new orders index slipped to a one-year low as some firms raised concerns about the current demand picture for their products. Consumer goods were behind most of the slowdown, recording considerably softer increases in sales, production, exports, input inventories, and buying levels. Growth of all of the aforementioned variables was led by capital goods makers, which, except for new orders, registered accelerated rates of expansion.

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