IN: PMI Services Index

Tue Oct 06 00:00:00 CDT 2015

Actual Previous
Level 51.3 51.8

The services PMI posted a 0.5 point drop to 51.3 in September to signal a renewed deceleration in business activity and only relatively sluggish economic growth.

The headline decline reflected a smaller increase in new business and a third consecutive decrease in unfilled orders. Together these prompted a slight reduction in sector headcount and contributed to towards the weakest reading on business expectations in the survey's history.

Inflation developments were soft. Hence, input costs were down for the first time in ten months which, in still very competitive markets, paved the way for the first cut in output prices since the end of the financial crisis.

With manufacturing activity also slowing during the period (PMI 51.2 after 52.3) the composite output index for September weighed in at just 51.5, its lowest reading during the recent three month period of economic expansion. Accordingly, with inflation pressures also waning, today's report further validates the RBI's 50 basis point interest rate cut last week. Indeed, without an improvement this month, speculation will quickly turn to another near-term monetary ease notwithstanding the central bank's insistence that its September move was front-loading.

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.