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Services PMI up in August, offsets decline in manufacturing growth

However, recruitments remain stagnant; inflation in services rises moderately, leaving room for RBI to cut rates

BS Reporter  |  New Delhi 

Services PMI up in August, offsets decline in manufacturing growth

Contrary to manufacturing, services activities expanded in August vis-à-vis July, showed the widely-tracked Nikkei purchasing managers’ index (PMI). However, expansion remained temperate. Nonetheless, firms did not hire additional manpower with growth being restrained. Inflation in services rose marginally, still leaving sufficient room for the Reserve Bank of India (RBI) to slash rates.

Going forward, firms were concerned about economic conditions and exchange rate movements. They were upbeat, though, about the high demand. PMI for services increased from 50.8 points in July to 51.8 in August pointing to a faster, albeit modest expansion in output.

A reading above 50 points shows expansion; below 50 indicates contraction. Before July, services activities contracted for two consecutive months. The growth was recorded in three of the six monitored categories — hotels and restaurants, post and telecommunications, and other services.

As PMI for manufacturing fell from 52.7 points in July to 52.3 points in August, as reported earlier, the composite PMI rose from 52 points to a five-month high of 52.6 points.

In GDP data released earlier this week, services grew 8.9 per cent in the April-June quarter of 2015-16 against 8.7 per cent in January-March 2014-15. A higher demand coupled with capacity improvements and increased marketing had contributed to the latest expansion in new business.

The surveyed Indian services companies indicated that the backlog of work shrunk in August, reflecting a general lack of pressure on capacity and efficiency improvements.

Evidence suggested that relatively weak increases in new business influenced service providers to leave their manpower unaltered. This ended a three-month sequence of job creation by services companies. Manufacturing firms had reported earlier that they did not offer additional jobs.

“The standout feature from the latest PMI data is the situation of the labour market. Both the manufacturers and the service providers left payroll numbers unchanged in August, with significant job creation not seen since early 2014,” said Pollyanna De Lima, economist at Markit Economics, which compiles PMI data.

Input prices faced by Indian services firms rose for the ninth month on the trot in August. Further increases in costs led services firms to raise their selling prices again in August. However, since inflation in the manufacturing sector eased, the overall rate of price rise for final goods, too, softened.

Pollyanna De Lima believes the rate cuts by RBI are forthcoming. “With growth remaining relatively weak and survey evidence pointing to a lack of inflationary pressures across the country, further rate cuts are on the cards.”

Chief economic advisor Arvind Subramanian had on Wednesday said deflation is a bigger wrinkle than inflation.

However, surveyed companies remained optimistic that business activity would increase over the course of next year, with positivity linked to forecasts of demand growth.

However, the Business Expectations Index dipped, reflecting the surveyed firms’ concerns around future economic conditions and exchange rate movements.

First Published: Fri, September 04 2015. 00:07 IST