Subdued new orders hit Dec services growth: PMI data

Services PMI falls to 51.1 from 52.6 in Nov; employment generation rises marginally

Unlike its manufacturing counterpart, which showed robust growth in December, the services sector ended 2014 on a weak note. Affected by subdued new orders, the services sector, a dominant one in India’s economy, in December grew at a rate slower than the previous month, showed the widely-tracked HSBC Purchasing Managers’ Index (PMI).

Services PMI stood at 51.1 points in December, compared with 52.6 a month earlier. A reading above 50 indicates expansion, while one below that level implies contraction. In October, the index had stood at 50, indicating a stagnation in the country’s services-related activities.

If the government’s official data show a trend similar to the indicative PMI numbers, that might have a bearing on India’s economic growth in the December quarter. The average of Services PMI numbers in the October-December period stood at 51.2 points, marginally lower than the 51.4 seen in the July-September quarter. In the September quarter, the rate of India’s economic growth had slipped to 5.3 per cent from 5.7 per cent in the previous three-month period.

Markit Economics, which compiles PMI data, attributed the month-on-month decline seen in the rate of services expansion in December to lower growth in new businesses.

“The overall slowdown in activity growth was mirrored by a weaker expansion in the services sector new business in December,” it said.

Despite Manufacturing PMI zooming to the highest level in two years in December, the composite output of the private sector — both manufacturing and services — grew moderately. Composite PMI declined to 52.9 points in December from 53.6 points in November.

“The latest rise was driven by manufacturing output, which rose at the quickest pace in two years,” Markit Economics said.

Within the services sector, financial intermediation saw no expansion in activities. “In our view, growth in financial intermediation is key to funding a meaningful pick-up in economic growth,” said HSBC Chief India Economist Pranjul Bhandari.

Lower activities notwithstanding, business confidence among service providers strengthened in December, said the compiler of PMI.

Business expectations grew at a quick rate, led by the hotels and restaurants sub-sector. Inflationary pressures from both input and output prices remained modest.

Surprisingly, employment generation in the services sector rose in December, albeit moderately, despite growth in the sector taking a hit. This was in contrast with the manufacturing sector, which saw lay-offs, despite Manufacturing PMI rising.

“Staffing levels in the Indian services sector increased in December, reversing the trend seen the previous month,” Markit Economics said.

However, many of the 350 private firms surveyed for putting together Services PMI data reported no change in employment.