Services activity growth slows, yet remained solid in July: PMI data

Moreover, cost pressures remained elevated, pushing up selling-price inflation to a seven-year high in July, which also saw stronger job creation

Growth in India’s services sector slowed down a bit in June but remained upbeat, amid new business gains, online offerings and investment in technology, a private business survey revealed.

The headline Purchasing Managers’ Index (PMI) figure, released by HSBC and compiled by S&P global, fell marginally to 60.3 in July from 60.5 in June. However, the index remained above the neutral 50-mark that separates contraction from expansion for the 36th straight month.

Moreover, the cost pressures remained elevated and pushed up selling-price inflation to a seven-year high in July which also recorded stronger job creation.

“Indian service providers experienced a further upturn in business activity during July. Survey respondents mostly cited investment in technology, online offerings, new business gains and rosy demand as the main drivers of growth. The third-fastest expansion in international sales for nearly ten years supported another robust increase in overall new order intakes, which in turn underpinned the hiring of full- and part-time workers,” the survey noted. 

The survey also noted that higher wage and material costs continued to push up business expenses, with the overall rate of inflation quickening from June. 

“Stronger cost pressures and positive demand trends contributed to the steepest rise in prices charged for the provision of services for seven years,” the survey said.

Pranjul Bhandari, chief India economist at HSBC, said that service sector activity rose at a slightly slower pace in July, with new business increasing further, primarily driven by domestic demand. 

“Looking ahead, services firms remained optimistic about the outlook for the year ahead,” she added.

On the export front, the survey noted that new export orders increased at the third-strongest pace since the inception of the series in September 2014, amid strengthening demand for Indian services from across the world. Some of the sources of rising export orders mentioned by panellists included Austria, Brazil, China, Japan, Singapore, the Netherlands and US. 

“Meanwhile, a pick-up in cost pressures and stronger pipelines of new business encouraged panellists to hike their selling prices again in July. The overall rate of charge inflation climbed to a seven year high,” the survey said. 

When explaining cost increases, firms particularly mentioned labour and materials. The latter was in turn attributed to greater outlays on eggs, meat and vegetables. The overall rate of cost inflation was solid and faster than that seen in June, but remained below its long-run average. 

On the employment front, the survey noted that the latest rise in employment levels was among the strongest in close to two years and job creation was achieved via the hiring of full- and part-time staff, anecdotal evidence showed. Favourable economic conditions and optimistic expectations for output supported recruitment among services firms.

“Despite historically strong increases in employment in recent months, and in tandem with demand buoyancy, backlog volumes rose further in July. The pace of accumulation was moderate, despite quickening from that seen at the end of the first fiscal quarter. Looking ahead, services firms remained strongly optimistic about growth prospects,” the survey noted.