IN: PMI Services Index

Mon Jan 05 23:00:00 CST 2015

Actual Previous
Level 51.1 52.6

Indian services saw a relatively sluggish end to 2014. At 51.1, down from 52.6 in November, the sector PMI was above the 50 growth threshold but not by much and only just a higher than its level at the start of the quarter.

Outstanding business expanded again but only marginally and at its slowest pace in three months while employment, having declined in November, was similarly up by the smallest extent in the last three months. At the same time, input costs increased just slightly and a rise in service provider charges was only fractional.

With the manufacturing PMI (54.5) well above the 50 mark, the composite output index weighed in at 52.9, a 0.7 point drop from its November reading but still indicative of a respectable year-end performance. However, more importantly for the RBI, overall private sector output inflation eased to its slowest rate since 2010.

On balance, there is nothing here to deter the RBI from delivering an expected cut in key interest rates next month.

Purchasing Managers' Services Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors. The HSBC India Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the Markit PMIs, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the report shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the diffusion index. This index is the sum of the positive responses plus a half of those responding the same.

The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.