Services PMI improves a tad to 51.8 in February

BL New Delhi Bureau | Updated on: Mar 04, 2022

However, job shedding continued for the third successive months

Following manufacturing, services sector in India did perform well, albeit at much slower pace, in February as Purchasing Managers’ Index (PMI) improved to 51.8 from 51.5 in January. However, job shedding continued and the latest fall in employment was the third in successive months and the fastest since July last year.

PMI for manufacturing, as released on Wednesday, rose to 54.9 in February as against 54 in January. Services and manufacturing have around 70 per cent share in Gross Value Added (GVA). Latest PMI data revealed that though businesses improved, still the job situation is not in good shape.

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 indicates an overall rise compared to the previous month, and below 50 an overall decrease.    

Dampening growth

“Following the escalation of the pandemic and an associated slowdown in growth in January, the service sector moved up a gear in February as Covid-19 cases declined and restrictions were lifted,” IHS Markit said in the report on PMI. However, the latest increase was subdued by historical standards, with some companies indicating that the growth was dampened by competitive pressures, Covid-19 and higher prices.

“Relatively weak growth of new business and a lack of pressure on capacity led some companies to reduce headcounts in February,” the report said.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that growth in the service sector failed to rebound as meaningfully as hoped, given that Covid-19 cases receded considerably from January’s new wave and restrictions were lifted. “New business and services activity expanded only modestly, and at the second-slowest rates since last July,” she said while adding that looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth.

Business optimism among services firms remained muted relative to its trend, despite improving from January, owing to pandemic-related uncertainty and inflationary pressures. “Although easing from January’s decade high, the rate of input cost inflation remained sharp in February. That said, fewer firms passed on additional cost burdens to clients amid subdued demand. Output prices rose only slightly, and at the slowest pace in five months,” she said.

Published on March 04, 2022
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