Services activity grows for first time since Feb, PMI hits 54.1 in Oct

Services sector activity expanded in October for the first time since February, reflecting growth in demand as the government continued to relax Covid-19 restrictions, a report by IHS Markit said on Wednesday. 

The Purchasing Managers’ Index (PMI) rose sharply from 49.8 in September to 54.1 in October, with new orders to companies registering an increase over the previous month, reversing a trend that began eight months ago. A PMI index of more than 50 represents expansion, while a figure below 50 means a decline in activity from a month ago.

As the services sector, excluding construction, contributes nearly 60 per cent to the gross value added in the economy, revival may gain speed in the October-December quarter (Q3FY21). 

“A sharp rise in factory production was accompanied by a return to growth of services activity,” the note said.

“While a revival of the manufacturing industry began in August, the service sector has started to heal now. Service providers signalled solid expansions in new work and business activity during October,” wrote Pollyanna De Lima, economics associate director at IHS Markit. 

The composite index, which includes manufacturing, was at 58 in October, with new orders expanding for the second straight month, bringing the index to its highest level since January 2013 and underlining the speed of revival. 

But as in the manufacturing sector, employment declined for successive months in services sector too. 

“The pace of job shedding was solid and matched that recorded in September,” said the report. 

Private sector employment declined for the eighth consecutive month. This could mean that the drag on individual incomes will persist for a long time even after corporate finances come back to normal. 

“Service providers noted another decline in employment, but anecdotal evidence suggested that efforts to hire had been hampered by labour shortages,” said De Lima.

Companies surveyed indicated that workers who had left after a nationwide lockdown was announced in March had not returned as the fear of Covid-19 contamination was widespread, restricting labour supply.

Input costs for companies rose, with input inflation reached an eight-month high. Fuel expenses, in addition to materials and maintenance, of these companies are slated to be high in Q3. 

The data also showed that the growth in demand was from domestic orders of new work, while new orders from abroad declined compared to the previous month.

The hopes of output growth in the year ahead were pinned on a possible Covid-19 vaccine, survey participants told IHS Markit.