India's services PMI rises to a five-month high in Dec on buoyant demand

Strong growth returned to the services sector in December as international business helped it scale a five-month high, according to a global survey released on Monday.

The widely tracked Nikkei India Services Purchasing Managers Index (PMI) stood at 53.3 in December, up from 52.7 in November. In PMI parlance, the 50-mark threshold separates expansion from contraction.

Services growth had peaked to a 43-month high of 54.7 in August, followed by two-straight months of contraction. This was in line with manufacturing activity, which also rose to 52.7 from 51.2 in November after October’s two-year low, according to a similar survey released last week.  Total sales expanded for the third consecutive month, and at the quickest pace since October, 2016, or more than three years. Firms that reported higher sales generally cited improved business decisions at the managerial level, the offering of new services and better underlying demand as key enablers for growth.

New business orders came mostly with the support of international markets, with services exports rising for a 10th straight month in December, the survey showed. Although moderate, the pace of growth accelerated to the fastest since September.

As a result, the pace of job expansion accelerated to a three-month high, the survey pointed out. Employment increased for a 28th month in succession and at the quickest rate since August.

However, outstanding business continued to increase, albeit slightly. Pending client payments and sudden increases in the levels of work-in-hand for a third straight month have led to this backlog expanding.

Average input costs zoomed past its average rates of increase, rising at the fastest pace in just under seven years. Input inflation has solidly increased in 2019. In the previous month, the rate of inflation had quickened to a 13-month high. Survey respondents mostly attributed higher cost burdens to rising food, fuel, transport and medical products. “Worryingly, however, were the survey’s results for price indicators. While inflation was subdued in the earlier part of 2019, there were three consecutive accelerations in the rate of input cost inflation this quarter. Services firms saw the fastest rise in their expenses in almost seven years in December,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.

Source: IHS Markit

However, average prices charged for the provision of services increased slightly less dramatically. Charge inflation was the strongest since February 2018. December saw the current run of inflation to 35 months. This meant that the gap between rates of input cost and output charge inflation was closed substantially, as compared to previous years.

Within the services industry, consumer services saw major growth, even as information and communication, and real estate and business services did well, among categories monitored by the PMI survey. Consumer services also registered the steepest rise in input costs in December, but the fastest increase in selling charges was recorded among transport and storage firms. 

The seasonally adjusted Nikkei India Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of GDP, rose to 53.7 from November’s 52.7.

Despite the official data showing a manufacturing led to slowdown till December, the PMI survey showed private sector jobs expanded for the 29th month in a row during December, and to the greatest extent since August. On the other hand, for both manufacturing and services, aggregate new orders rose at their strongest pace in over three years.