Services had a much better December than November with business activity returning to respectable positive growth following a period of near-stagnation. The sector PMI weighed in at 53.6, up from 50.1 last time and a 10-month high.
Leading the improvement was a healthy rise in incoming business although the good news here was tempered by a fall in backlogs and employment was only unchanged. Moreover, business sentiment was more optimistic but still at its second weakest level since records began. Meantime, price pressures rose slightly. Hence, input costs advanced on the back of higher wages as well as more expensive transport and food. However, while cost inflation climbed to a 7-month peak, it also remained below its long-run average. Output prices increased for the first time since August but the rate of inflation here was only marginal.
With the manufacturing PMI (49.1) having already fallen back below 50 for the first time since October 2013, the bounce in the services PMI was only enough to see the composite output index rise from November's 5-month low of 50.2 to 51.6. That said, heavy flooding in the east of the country clearly had a significant impact on goods production last month so the relative weakness of overall output is hardly surprising.
The RBI is widely seen easing again modestly this year. Nonetheless, with a wary eye on the exchange rate, some increase in inflation and, more generally, an uncertain domestic economic picture, any interest rate cuts are likely to be delivered only very cautiously.
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.