According to the latest PMI survey, service sector growth accelerated in August. Even so, while at 51.8, the headline index was a point firmer than in July it was still close enough to the 50 mark to signal only a modest pick-up in activity rates.
August's improvement was led by stronger inflows of new business although, again, the increase here too was still relatively mild. Backlogs were slightly lower and payrolls were unchanged, the first time in three months that they have not risen. Overall business expectations about the year ahead remained positive but this masked a worrying decline in the measure to a series low.
Costs rose again and prompted a fresh increase in service provider charges. However, the acceleration was gentle and inflation stayed both low and well short of its long-run average.
Following a disappointing manufacturing PMI (52.3 after 52.7) the improvement in the services index was enough to ensure a 0.6 point rise in the composite output gauge to 52.6, a 5-month high. Nonetheless, the signs are that the Indian private sector is growing only slowly which, with expectations deteriorating and inflationary pressures apparently quite light, should give the RBI all the room it needs to cut interest rates again later this month.
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.