IN: PMI Services Index

Wed Aug 03 00:00:00 CDT 2016

Actual Previous
Level 51.9 50.3

Growth of Indian service sector activity gained some much needed momentum in July. However, a 3-month high of 51.9, up from 50.3 in June, was still only indicative of a moderate rate of expansion and short of the series' long-run average.

The improvement reflected a larger rise in new business, the most pronounced since April, and another increase in backlogs. Employment was still only broadly flat again but expectations for the year ahead rose to a 4-month peak.

Inflationary pressures eased somewhat. Hence, input costs declined for the first time since last September and part of this fall was passed on in lower service provider charges. That said, the drop here was only marginal.

Combined with the manufacturing PMI already released (51.8), today's services report puts the July composite output index at a 3-month high of 52.4. This suggests that real GDP began the current quarter on a more solid footing. Even so, growth remains too soft to accommodate any meaningful increase in employment and with inflation relatively becalmed, businesses will still be hoping for a cut in RBI interest rates, if not next week then at least before year-end.

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.