Services PMI falls to 52.4 in August on slower rate of increase in output

Growth in services activity slowed in August, after expanding to a 12-month high in the previous month, presenting a volatile picture in the biggest sector of the economy.

The widely tracked IHS Markit purchasing managers' index (PMI) showed the PMI fell to 52.4 in August from 53.8 in July because of a slower rate of increase in output. A reading below 50 reflects contraction, while one over 50 denotes expansion in PMI parlance.

The services sector continuing to be on the growth path after contracting in June was, however, a consolation. This way the sector has seen a fluctuating situation in the past three months.

One reason for the decline was that new business inflows rose at a slower pace following which job creation also moderated.

Earlier, data showed the PMI for manufacturing also declined to a 15-month low of 51.4 per cent in August. 

“The weaker PMI readings for India’s services sector match the trend noted in the manufacturing industry, bringing unwelcome news of a cooling economy halfway through the second quarter of fiscal year 2019-20,” said Pollyanna de Lima, Principal Economist at IHS Markit.

The composite PMI output index, that maps both the manufacturing and the services industry, fell from 53.9 in July to 52.6 in August.

Growth of aggregate new orders moderated from July and was modest. Private sector jobs rose further in August, but the pace of expansion was slower.

“Although the two surveys combined point to another round of job gains, a retreat in the rate of employment expansion highlights a wait-and-see approach among businesses that are longing for a meaningful and sustained pick-up in demand growth,” Lima said.

Despite the decline, service providers remained confident of a rise in business activity in the coming 12 months, with optimism strengthening to a one-year high.

Forecasts of better demand conditions, marketing initiatives and accommodative public policies all boosted sentiment in August, the survey noted.

“An important development, however, is evident in a rebound in business sentiment. Both manufacturers and service providers believe that supportive public policies can help shift growth momentum into a higher gear in the coming 12 months,” Lima said.

On the inflation front, the survey noted that services companies lifted their selling prices again in August.

The macro economic data is being watched keenly after India’s gross domestic product growth plummeted to a 25-quarter low of 5 per cent during April-June, 2019-20. 

That way, PMI for manufacturing as well as services in August did not show any turnaround in the economy. 

The PMI is based on a survey carried out by IHS Markit covering 400 private services companies in India representing a wide-spectrum of segments but excluding retail.