IN: PMI Services Index

Thu Nov 03 00:00:00 CDT 2016

Actual Previous
Level 54.5 52.0

India's PMI services business activity index rose to 54.5 in September, up from 52.0 in September. With the previously reported manufacturing PMI index posting a strong increase in October, the Composite PMI Output Index rose to 55.4 from 52.4 in September. This was the sixteenth consecutive month above the breakeven 50.0 level for this index, and its highest level in nearly four years.

The services sector PMI survey also showed stronger growth in new business in October compared with September, in line with the results of the manufacturing survey. Both surveys, however, showed little change in employment in October.

Survey respondents reported muted cost pressures in the services sector in October, in contrast with stronger growth in input prices in the manufacturing sector. This allowed services sector respondents to keep their output prices flat, whereas manufacturers reported increasing their prices at the fastest pace since April.

The two PMI surveys show that both manufacturing and service sector firms have seen improved conditions over the last month, though this has yet to flow through to stronger job growth or a significant pick-up in price pressures. Although the main activity index for both surveys have shown some volatility in recent months, they have consistently stayed well above the 50.0 level, indicating solid albeit uneven growth in both sectors.

The Services Purchasing Managers' Index (PMI) is a joint publication by Markit and the Nikkei media organisation and provides an estimate of business activity in private sector services for the previous month by using information obtained from a representative sector survey incorporating around 800 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).

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.