PMI services growth slows in July

Growth in services, the biggest sector of India's economy, slowed in July compared with a 17-month high in June. Both orders and sentiment moderated, the widely-tracked HSBC Purchasing Managers’ Index (PMI) survey showed. However, prices rose at a faster rate over the period, justifying the Reserve Bank of India (RBI)’s cautious stance on interest rates.

The PMI stood at 52.2 points in July against 54.4 in the previous month. The July reading was an expansion in services for a third month in a row, after the tertiary sector contracted for 10 consecutive months. A reading above 50 means expansion, while one below that means contraction.

The data released last week showed manufacturing PMI rose to a 17-month high of 53 points in July. The composite output index grew lower at 53 points in July against a 16-month high of 53.8 points in June. Services growth dropped in July compared to June but a number of panellists associated the rise in activity with improving demand. Among the six monitored sub-sectors, only hotels & restaurants, and transport & storage companies registered reductions in activity. The PMI survey is based on about 350 private sector service companies in India.

Services PMI slowed in other countries as well. For instance, PMI for services activities was at a nine-month low of 50 in July in China, against 53.1 points in the previous month. This showed services activities growth was stagnant in July in China. In India, amid reports of stronger demand, new business in the service sector rose for a third month in a row in July. “The rate of expansion was reduced from the previous month, but remained solid,” said Markit Economics, which compiles the PMI data.

Levels of overall outstanding business rose in July, extending the current sequence of growth to five months. Moreover, the rate of accumulation was solid with stronger rise observed in the services sector. Anecdotal evidence linked greater volumes of work-in-hand to improved demand and delayed payments from clients.

Following June’s marginal rise, staffing levels in the services sector fell fractionally in July. Earlier, data showed hiring declined in the manufacturing sector as well. As such, employment level fell across the private sector for the first time in April.

Meanwhile, final prices rose at a faster pace to reflect the rising costs. As such, an advice came from Neumann for the RBI  “to remain cautious about inflation risks”. The central bank has maintained a status quo in its policy rates.