IN: PMI Services Index

Wed Aug 05 00:00:00 CDT 2015

Actual Previous
Level 50.8 47.7

For the first time in three months, the service sector economy achieved positive growth in July, but only just. At 50.8 the sector PMI was more than 3 points above its June reading but only 0.8 points stronger than the 50 expansion threshold.

July's recovery was led by a bounce in new orders which, in turn, prompted the largest, albeit still relatively small, rise in employment in two years. A stronger headcount also allowed the first fall in backlogs since February 2014.

Cost inflation was up but input prices still only increased marginally, and the same pattern held true of service provider charges.

Today's results are clearly an improvement on the June report but weakening confidence is a worry. Hence, while on average still positive, business optimism last month dropped to a survey low. With the manufacturing PMI (52.7) also indicating a pick-up in momentum, the composite output index climbed from 49.2 at the end of last quarter to 52.0 and so similarly signalled modest economic growth. Taken together with weak inflation pressures, the RBI may need to cut interest rates again before too long if it is to meet its inflation targets.

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.