Services activity rebounds in August, PMI at 56.7

Unlike manufacturing, Services sector rebound in August as Purchasing Managers’ Index (PMI) jumped to 56.7 in August as against 45.4 in July. This is first expansion in four months and fastest in last 18 months. However, job situation has still not improved.

On September 1, PMI for manufacturing dropped to 52.3 in August from 55.3 in July.

Manufacturing PMI slipped to 52.3 in August

Both the PMI data are released monthly by IHS Markit, in advance of comparable official economic data. Services has a share of 57 per cent in Gross Value Added (GVA), while for manufacturing, it is over 14 per cent. Both PMIs are prepared by compiling responses from questionnaires sent to a panel of around 400 companies each from manufacturing and services sector. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

“Indian service sector growth resumed in August as the pandemic continued to recede and vaccine access improved. Companies indicated that the reopening of several establishments and increased consumer footfall boosted sales, which in turn supported the first expansion in output in four months and a rebound in business confidence,” a report prepared by IHS Markit along with survey result said.

Employment scenario

It also highlighted the fact that as firms had ample capacity to deal with rising new orders, there was not much job creation. “Despite signalling upbeat growth projections, service providers again lowered headcounts in August. However, the rate of job shedding was marginal and the weakest since January. Several firms indicated having sufficient workers to meet demand needs,” it said.

Commenting on Services PMI, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that the Indian service sector bounced back in August, led by the reopening of several establishments and improved client confidence due to growing vaccine coverage. A substantial pick-up in domestic demand underpinned the strongest monthly increase in new business for over eight-and-a-half years and renewed growth of activity.

Outlook

"Service providers foresee a brighter outlook, with firms indicating that the economic recovery could be sustained if restrictions continue to be lifted and further waves of contamination can be avoided. This was a notable turnaround in confidence from July, when companies were pessimistic towards growth prospects,” she said.

According to survey report new orders placed with service providers rose in August, ending a three-month sequence of reduction. Moreover, the pace of expansion was marked and the quickest in over eight-and-a-half years. According to survey respondents, sales growth stemmed from greater consumer footfall, the reopening of several firms and successful advertising.

“Less upbeat news came from the survey's employment measure, with services jobs shrinking again amid sufficient capacity among firms to meet current demand needs. There was at least a slowdown in the pace of job shedding. Another worrying aspect was the evidence that inflationary pressures continued to mount. Input costs increased at the fastest rate in four months, one that outpaced its long-term average,” De Lima concluded.

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