IN: PMI Services Index

Wed May 06 00:00:00 CDT 2015

Actual Previous
Level 52.4 53.0

The services PMI fell 0.6 points to a 3-month low of 52.4 in April.

Orders continued to expand but at a reduced pace compared with the end of the second quarter and a rise in backlogs, the steepest since last October, had more to do with late payments by clients than issues with capacity. Indeed the sector's headcount was slightly down on the previous month. Input charges rose again but the rate of cost inflation was only very moderate and service provider prices decelerated from an already historically soft pace in March. Even so, optimism about business activity over the coming year saw its highest mark since January.

With the manufacturing sector PMI (51.3) also signalling slower growth the composite output index dropped from March's 53.2 to 52.5, its lowest reading in half a year. The combination of a sluggish real economy and declining inflationary pressures should ease the path to another RBI interest rate cut, possibly as soon as the next central bank meeting in June.

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.