Business activity in services continued to expand last month. At 53.0 the sector PMI was 0.9 points below its February level but still consistent with a moderate pace of economic growth.
Output was up in four of the six major sectors, supported by another increase in new orders, albeit at a slightly slower pace than in mid-quarter. Backlogs also advanced and employment similarly made fresh ground having only stabilised in February.
Input cost inflation climbed relatively sharply and posted its fastest rate since June 2014 but this was only partially mirrored in output prices where inflation was only slight and well below its input cost counterpart. Business expectations for the year ahead were quite upbeat.
Despite the slowdown in service sector activity the March composite output index dipped just 0.3 ticks to 53.2, its eleventh consecutive month above the 50 growth threshold. However, even combined with the pick-up in price pressures this may not be firm enough to prevent the RBI trimming key interest rates tomorrow. The call is certainly very close.
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.
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