Business activity in services accelerated usefully in January with the sector PMI rising 1.3 points from its December level to 52.4.
The promising start to 2015 reflected a ninth consecutive increase in new orders although within the overall rise a solid gain in other services masked a relatively sharp decline in financial services. Backlogs were also up but increased demand did little to boost employment with payrolls edging only fractionally higher.
Having posted their first fall in more than five years in November input costs were up for a second successive month and at their fastest pace in six months. That said, the rise was still quite muted and low by historical standards. Service provider charges similarly advanced for a second time in as many months but, again, while inflation here saw its strongest mark since July 2014, the rate remained well below its long-run average. Looking ahead, firms were quite upbeat and business expectations hit their highest level since January last year.
When combined with the slowdown already noted in the manufacturing sector PMI (52.9 after 54.5), today's service sector findings yield a composite output index of 53.3, a modest 0.4 point increase versus December. Accordingly, taken at face value the results suggest a limited pick-up in private sector growth last month accompanied by just a gentle rise in pipeline inflation pressures. This should leave the RBI on course for another 50-75 basis points of interest rate cuts before the year is out.
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.