Services activities moderate in Sept but firms continue hiring: PMI survey

Activities in services, the biggest sector in Indian economy, moderated in September compared to August though states eased restrictions to slow down the coronavirus, said the IHS markit purchasing managers’ index (PMI) survey on Tuesday. Activities still grew second fastest since February 2020.

PMI declined to 55.2 in September from 56.7 in August. In PMI lexicon, a reading above 50 shows expansion, while below it means contraction.

To give it a perspective, PMI in September declined from an 18-month high index in the previous month. Whereas the index in August had risen on the base of contraction with PMI standing at 45.4 in July. (PMI measures activities on a month-on-month basis.)

Respondents to the survey mentioned accommodative market conditions and favourable underlying demand amid the easing of Covid-19 restrictions.

With the pandemic receding, consumer footfall improved. This, coupled with marketing efforts, reportedly supported another increase in new business inflows.

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Buoyed by signs of improvements in underlying demand, service providers took on additional staff during September. The increase in employment ended a nine-month sequence of job shedding, but was marginal overall as some companies indicated having sufficient workforces to deal with their workloads.

September data pointed to ongoing signs of spare capacity among services companies, with outstanding business volumes declining for the second month in a row. That said, the pace of backlog depletion eased and was only slight.

Amid reports of higher fuel, material, retail and transportation prices, average cost burdens faced by service providers rose further during September. The overall rate of inflation was solid, but softened to an eight-month low.

Some companies suggested that additional cost burdens were shared with their clients via increases to selling prices. However, others refrained from lifting their fees in attempts to secure new work. Average prices charged for the provision of services rose during September, but the rate of inflation eased and was negligible by historical standards.

Meanwhile, business confidence weakened in September. Anecdotal evidence suggested that optimism was curbed by worries regarding inflationary pressures.

Where output was predicted to expand over the course of the coming 12 months, firms largely expected the ongoing retreat of the pandemic and associated restrictions to support growth.

Finally, travel restrictions continued to weigh on international demand for Indian services. New export business contracted for the nineteenth month in a row, and at a sharp rate that was the quickest since May.

“While forecasts of better demand in the year ahead supported business confidence regarding output, growth looks set to be constrained by rising inflation expectations,” said Pollyanna De Lima, economics associate director at IHS Markit.

Lima saw a substantial decline in positive sentiment among service providers due to this factor, despite input cost inflation retreating in September.

PMI for services

April,19	May, 19	June, 19	July, 19	Aug, 19	Sept,19	Oct, 19	Nov, 19	Dec, 19	Jan, 20	Feb, 20	March, 20	April, 20
51	50.2	49.6	53.8	52.4	48.7	49.2	52.7	53.3	55.5	57.5	49.3	5.4

Note: A reading above 50 shows growth and the one below it means contraction

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