Services activity at 7-year high in January as new orders zoom: Survey

The services sector began the year with a bang as new orders in January rose at the fastest pace in seven years, dwarfing December’s five-month high growth, according to a survey released on Wednesday.

The widely tracked Nikkei India Services Purchasing Managers Index (PMI) stood at 55.5 in January, up from 53.3 in December. In PMI parlance, the 50-mark threshold separates expansion from contraction.

New international business also pushed the sector’s output to a similar seven-year high during the month. This would allow firms to recuperate from the high volatility in 2019, when the sector saw the PMI contract during three months, industry insiders said.

Services growth had peaked to a 43-month high of 54.7 in August, followed by two straight months of contraction. However, this has been followed by steady growth since November. This has been in line with manufacturing activity, which mirrored a steep upward move of the growth curve in January when the PMI reached 55.3, the highest in nearly eight years, according to a survey released earlier this week.

For services, total sales expanded for the fourth consecutive month in January. Consumer services growth was the most marked, after transport and storage firms had seen the biggest boost in the previous month. The zooming rate of growth in January was largely due to favourable market conditions and better underlying demand, said survey participants. 

New work intakes also expanded to the greatest extent in seven years. Policymakers would be happy to note that most new work orders came from the domestic market, thereby hinting at resurgence in domestic demand after a long period of economic decline over 2018.

As opposed to the latest trend, the PMI survey noted that most growth over 2019 originated in the international markets. But in January, services exports suffered a decline, after rising for 11 months on the trot, the survey showed. A number of panellists mentioned weaker demand from China, Europe, and the US.

High growth in new business also brought equally high input inflation, with average input costs rising at the fastest pace in seven years. Input inflation has solidly increased last year. 

Survey respondents mostly attributed higher cost burdens to rising beauty products, food, freight, fuel, and maintenance. “Firms mostly absorbed the added cost burdens themselves instead of fully passing these on to their customers. This may translate into quicker increases in selling prices in the months to come, which may curb sales. Firms could also choose to restrict hiring in order to protect profit margins,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report. However, average prices charged for services increased less dramatically. Charge inflation was the strongest since February 2018. December saw the current run of inflation to 36 months. This meant that the gap between rates of input cost and output charge inflation still hasn’t closed.