Indian services slowed in November. In fact, at just 50.1, the sector PMI was close enough to the 50 growth threshold to indicate a period of stagnation.
New orders rose at their slowest rate since July with fierce competition and subdued economic conditions weighing heavily. Backlogs were up again, but only modestly and largely due to late payments, while a small increase in employment was well short of its long-run average. Input costs advanced for a second successive month but the rate of inflation was only slight despite reaching its highest mark since the middle of the year. In any event, soft demand kept service provider charges flat and, ominously, business optimism sunk to a record low.
In the wake of an equally disappointing manufacturing PMI (50.3) the deceleration in services put the November composite output index at just 50.2. The private sector economy effectively stalled in mid-quarter which, with inflationary pressures still relatively subdued, should see financial markets anticipating another round of RBI interest rates cuts early in 2016.
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.
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