Services PMI contracts to four-year low in August

Transport and storage companies register the fastest contraction; this is the first time since March 2009 that services and manufacturing PMI contracted in the same month

The services sector — the largest segment in the Indian economy — contracted for the second consecutive month in August due to weakness in new orders, according to the HSBC Purchasing Managers’ Index (PMI), dashing any hopes of economic recovery in the second quarter of 2013-14.

The services PMI fell to 47.6 points in August from 47.9 points in July. The September reading was the lowest after April 2009, when it had stood at 45.9 points due to the ripple effects of global financial crisis. In July, the index had fallen for the first time in 20 months.

This resulted in the decline of the composite PMI, which takes into account manufacturing and services, to 47.6 points in August from 48.4 points in the previous month. A reading above 50 indicates  expansion, while one below 50 means contraction.

The manufacturing PMI released on Monday contracted for the first time since March 2009 as the reading dipped to 48.5 points in August from a more or less flat growth of 50.1 points in July.

The figures point to further slow down in the gross domestic product (GDP) growth in the second quarter of the current financial year, after a four-year low expansion of 4.4 per cent in the first quarter.

Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, said: “The numbers we have seen so far for July and August for both the manufacturing and service sectors point to a further slowdown in GDP growth during the July-August quarter.”

Markit Economics, a financial information firm which compiles the PMI data, said four out of the six monitored sub-categories recorded reduction in business activity this month.

The ones which did not show contraction were financial intermediation and post and telecommunication.

The fastest contraction was registered for transport and storage companies. These services are listed separately in the GDP data.

In the backdrop of the global financial crisis, this is the first time since March 2009 that services and manufacturing PMI contracted in the same month.

While financial services along with real estate and business services rose 8.9 per cent in the first quarter of 2013-14 against 9.3 per cent in the same period of 2012-13, communication along with trade, hotels and transport posted just 3.9 per cent growth against 6.1 per cent over the period, according to official data.

“Service sector activity slowed further in August led by weaker new business flows, which led to a slowdown in employment growth and a decline in sentiment among service sector companies,” said Eskesen.

In the backdrop of the global financial crisis, this is the first time since March 2009 that services and manufacturing PMI contracted in the same month. The survey also indicated that the new orders in the Indian private sector fell solidly and at the fastest pace since March 2009.

There was an output fall in both manufacturers and service providers. The inflation on input cost in the Indian private sector accelerated to the steepest pace in six months, strongest for hotels and restaurants and transport and storage firms. “Service providers indicated that a range of raw materials, fuel, transport and labour costs increased over the month,” said Markit Economics.

Almost 31 per cent of the panelists anticipate higher output in the year ahead, compared with 37 per cent in July. However, the degree of optimism among them was the weakest in 17 months.