Services continued to expand in February. With a PMI of 53.9, up 1.5 points versus January, growth accelerated at a solid rate and touched an 8-month high.
The latest improvement was largely due to a stronger increase in new business, its largest gain since June 2014, and rising output was reported in four of the six categories covered in the survey. Backlogs also posted a broad-based advance but after two months of increases, employment was only stable. Sentiment about the year ahead remained positive.
Price developments were moderate. Hence, the rate of input cost inflation eased to a level that was both only slight and well below its long-run average. At the same time, a third successive rise in service provider charges still saw a decline in their yearly rate.
Despite the deterioration in the manufacturing PMI (51.2 after 52.9), the pick-up in services was enough to see the composite output index edge up 0.2 points to 53.5. This suggests that overall economic activity was expanding at a decent pace in mid-quarter in which case probable further RBI interest rate cuts after today's surprise move may have to wait a while.
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.