Service sector on rise too, PMI hits 52.5 in February

Services followed manufacturing in February, as Purchasing Managers’ Index (PMI) rose to 52.5 as against 52.2 in January, the result of a survey revealed on Tuesday. Similar index for manufacturing sector, released on March 1, clocked 54.3 in February which is 14 months high.

Just like manufacturing, survey for Services PMI is conducted among purchasing managers of over 400 private companies. These companies belong to five sectors namely Consumer Services, Transport & Storage, Information & Communication, Financial & Insurance and Real Estate & Business Services. Index over 50 shows expansion and if it goes below 50, it indicates contraction. The index and subsequent report are prepared by IHS Markit.

According to the report, activity Index pointed to a moderate though quicker upturn in output. Greater bookings, the securing of new clients and supportive public policies were often commented on by companies that reported higher output. New business rose to a greater extent in February amid strengthening underlying demand. Some firms also suggested that marketing efforts bore fruit. The upturn in total new work was domestically driven, as highlighted by a renewed contraction in external sales.

Commenting on the Services PMI, Pollyanna De Lima, Principal Economist at IHS Markit, said that Indian economic growth strengthened halfway through the final quarter of FY18 to the second fastest since last July. The acceleration was driven by a thriving manufacturing sector, where production growth hit a 14-month high. Notably, manufacturing new export orders rose solidly and at a quicker rate against a backdrop of weakening global demand and trade frictions. When looking at other emerging markets, PMI data showed that the Indian goods producing industry outperformed those in Brazil, Russia and China by a considerable margin.

“Looking at the service sector in isolation, the PMI survey showed faster increases in new work and business activity supporting one of the best upturns in jobs for eight years. Still, these results confirmed a growing performance mismatch between manufacturing and services. Goods-producing companies outperformed their services counterparts for the seventh straight month, with the gap in output performance the widest for a year,” she said.

The report mentioned that the upturn in services new work was domestically driven, as highlighted by a renewed contraction in external sales. Conversely, goods producers were able to secure orders from international markets. The increase was solid and picked up pace from January. Business sentiment among service providers strengthened in February on the back of expectations of further improvements in domestic demand, advertising efforts and the offering of new services. The level of confidence towards the 12- month outlook for activity was below its long-run average.

Upbeat demand conditions fed through to the labour market, with service sector jobs expanding at the same solid rate that was registered at the start of 2019. In the manufacturing industry, the upturn in payroll numbers was the joint-quickest in 14 months, supporting the second-steepest rise in aggregate employment in close to nine years.

With growth of manufacturing production also gathering momentum in February the Composite PMI Output Index rose to 53.8 in February from 53.6 in January to signal a solid and accelerated increase in private sector activity in the country.

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