Services PMI jumps to 18-mth high in Aug as vax access, footfall improve

Services, the dominating sector of India's economy, grew for the first time in four months to a one and a half- year high in August as vaccine access improved and consumer footfall rose following reopening of several establishments, showed IHS Markit Purchasing Managers' Index (PMI) survey. However, companies continued to reduce their workforce, though at a slower pace than earlier.

The index rose to 56.7 in August from 45.4 in the previous month. A reading above 50 shows expansion and one below that means contraction.

Apart from re-opening of many establishments and increase in footfall, companies also attributed the rise in activities to successful advertising.

If the trend persists in September, it may give further boost to services growth in the country in Q2FY22. Services grew 11.4 per cent in the first quarter of the current financial year in the gross domestic product (GDP) data on a low base of 21.5 per cent contraction in the corresponding period of the previous financial year. However, there is a difference  in the methodology of GDP computation and PMI survey. PMI gauges month-on-month activities, while GDP calculates year-on-year.  

While data showed that firms had ample capacity to deal with rising new orders, this was also a factor which prevented job creation.

Companies mentioned strong inflows of new work and improved demand conditions.

New orders placed with service providers rose in August, ending a three-month period of reduction.

While demand conditions in the domestic market were generally conducive for growth, firms saw a further decline in new export orders. The downturn was associated with the Covid-19 pandemic and travel restrictions. The rate of contraction in new business from abroad remained sharp.

Despite signalling upbeat growth projections, service providers again lowered headcount in August. However, the rate of job shedding was marginal and the weakest since January. Several firms indicated having sufficient workers to meet demand needs.

Pollyanna De Lima, economics associate director at IHS Markit, said less upbeat news came from the survey's employment measure, with services jobs shrinking again amid sufficient capacity among firms to meet current demand needs. "There was at least a slowdown in the pace of job shedding," she said.

Service providers indicated that higher fuel, retail and transport prices pushed up their expenses in August. Overall input costs increased at the strongest rate in four months and one that outpaced its long-run average. Charges levied by services companies likewise increased in August. That said, the rate of inflation softened to the weakest since March and was only marginal.

"Another worrying aspect was the evidence that inflationary pressures continued to mount," Lima said.

Data on Wednesday had shown manufacturing PMI declining in August. Combining this with services index pointed to a renewed increase in private sector activity across India, ending a three-month period of downturn.

The Composite PMI Output Index was up from 49.2 in July to 55.4 in August, signalling a robust rate of expansion. Services firms outperformed manufacturers for the first time in over three years.