IN: PMI Services Index

Fri Jul 03 00:00:00 CDT 2015

Actual Previous
Level 47.7 49.6

June was not a good period for the Indian services economy. At 47.7 the sector PMI was nearly 2 points short of its May reading and so below the 50 expansion threshold for a second successive month.

The headline decline reflected another contraction in new business which fell at its fastest pace since December 2013. Backlogs were up but only marginally and once again seemed to be mainly a function of delayed payments by clients. Employment growth was also very modest while business confidence slipped to a 3-month low.

Input costs rose but at a slower pace than in May and in turn saw service provider charges increase only slightly and at a rate well below their historic norm.

Despite a positive growth outturn from its manufacturing counterpart (51.3) the fall in the services PMI was large enough to ensure a 2 point drop in the key composite output index to 49.2, its first sub-50 post since April 2014. The weakness of the private sector economy last month will inevitably be seen as adding pressure on the RBI to deliver further interest rate cuts over the latter half of the year.

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.