With new orders slowing, the Purchasing Managers’ Index (PMI) for February slipped to 60.6, S&P Global said on Tuesday. The index was at 61.8 in January.
Services sector has over 53 per cent share in Gross Value Added (GVA).
“Due to a slowdown in growth in new orders and output, services companies’ outlook for future business activity, while remaining strongly positive, weakened slightly. Prices charged for services rose at the slowest rate in 24 months as input prices inflation moderated,” Ines Lam, economist at HSBC said. The PMI is based on responses from purchasing managers of 400 companies. Index above 50 reflects expansion, while below 50 means contraction.
The above-50 index signalled expansion well above the series history. However, there is no good news on the job front. A report accompanying the index said companies created jobs on the back of rising workloads, but the easing of capacity pressures and lower confidence in the outlook dampened employment growth. “The pace of hiring growth was fractional and the joint-slowest in the current 21-month sequence of job creation. Survey members mostly indicated that workforce numbers were sufficient for current requirements,” the report said.
Based on granular data, the report mentioned that business activity increased across the service sector. Among sub-sectors, finance and insurance saw the strongest pace of growth by a considerable margin, while the slowest rise was in real estate and business services.
New business inflow
February data highlighted a notable upturn in demand across the service sector, with inflow of new business increasing for 31 months running. That said, like for output, the rate growth softened from January’s high while remaining well above the long-run average.
“New business from abroad placed with services firms in India rose for the thirteenth successive month. Survey participants reported gains from Australia, Asia, Europe, the Americas and UAE. Collectively, international sales expanded at a solid rate, which was among the best in the nine-and-a-half-year series history,” the report said.
The survey also showed the second-weakest cost pressures in the sector since August 2020 and the softest increase in selling charges for two years. Higher food, freight and labour costs pushed up input prices, according to anecdotal evidence. “Indian companies operating in the service sector sought to protect their margins by raising prices charged to customers. That said, the rate of inflation was slight, below its long-run average, and cooled to the weakest in two years,” the report said.
Business confidence in the year-ahead outlook for activity weakened in February. Still, around 26 per cent of companies foresee growth and only 2 per cent anticipate a fall. Where optimism was signalled, firms cited buoyant client appetite, greater publicity and an improvement in customer relations.