Purchasing Managers’ Index (PMI) for the services sector dropped for a second successive month in December to 55.5. This is the lowest in three months. Another bad news is that number of jobs were reduced.
Manufacturing PMI too slipped in December to 55.5, and which also three months low. ThePMIdata are released every month by IHS Markit in advance of comparable official economic data.Serviceshas a share of 54 per cent in Gross Value Added (GVA), while for manufacturing, it is over 14.5 per cent.BothPMIs are prepared by compiling responses from questionnaires sent to a panel of around 400 companies each from the manufacturing andservicessectors. 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.
Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said 2021 was another bumpy year for service providers and growth took a modest step back in December. Still, the latest readings pointed to robust sales and business activity increases compared to the survey trend. “Moreover, owing to the buoyant performances seen in October and November, the average growth rate for output over the third quarter of the fiscal year 2021/22 was the strongest since the three months to March 2011,” she said.
Subdued sentiment
The report accompanying PMI data said that the latest results also improved in business confidence. However, sentiment remained subdued as several firms were concerned about price pressures and the possibility of new waves of Covid-19. Rates of input cost and output charge inflation eased in December, however. Despite falling to three months low, the seasonally adjusted India Services Business Activity Index was still consistent with a marked rate of economic expansion. “The upturn was often associated with improving market conditions and accommodative demand,” it said.
December data showed renewed job shedding in the service economy, but the rate of contraction was only slight. In fact, the vast majority of surveyed companies (96 per cent) left payroll numbers unchanged from November. Firms generally suggested that employment levels were sufficient to cope with current workloads. Service providers reported a further increase in expenses during December. Anecdotal evidence highlighted higher prices for chemicals, food, fuel, medical equipment, office products, tools and transportation. Although sharp and above its long-run average, the overall rate of inflation softened to a three-month low.
According to De Lima, amid reports of rising expenses, prices charged for services in India increased at the end of 2021. That said, the rate of charge inflation was moderate, below trend and the weakest since September. Business confidence strengthened during December to a four-month high, but sentiment remained subdued in the context of historical data. “Some firms foresee further improvements in demand and expect marketing efforts to bear fruit. Others were concerned that the recovery could be dampened by price pressures and potential new waves of Covid-19,” she said.