IN: PMI Services Index

Tue Sep 05 00:00:00 CDT 2017

Actual Previous
Level 47.5 45.9

The Nikkei PMI for India's services sector showed an increase in the headline business activity index from 45.9 in July, its lowest level since September 2013, to 47.5 in August. The low level for the index in July follows the introduction of a new goods and services tax by the Indian government. The headline index for the Nikkei Manufacturing PMI survey, published last week, also rebounded in August, rising to 51.2 from 47.9 in July. Together, these increases resulted in the composite index advancing from 46.0 in July to 49.0 in August.

The improvement in the service sector headline index reflected a similar increase in the survey's measure of new orders, which indicated a smaller decline than that seen in July. The manufacturing survey showed a small increase in new orders after the decline in June. Respondents to both surveys reported positive sentiment about the twelve month outlook but to a somewhat lesser extent than in July. There were differences in reported employment growth - the manufacturing survey's measure of employment increased to its highest level in over four years in August, whereas service sector respondents reported they had shed staff for a second consecutive month.

Both surveys indicate that price pressures remained subdued in August. The service sector survey's measure of input cost growth picked up slightly but remains well below its long-term average, while its measure of selling prices growth decline form the recent high recorded in July. Manufacturers reported input costs grew at their slowest pace in a year and selling prices were increased only negligibly.

The PMI surveys for August show that there has been some recovery from the initial impact of the new tax but that conditions in the manufacturing sector and particularly the services sector remain subdued. The recent cut in policy rates by the Reserve Bank of India may provide some support to sentiment and activity in coming months but the chances of further rate cuts will likely depend primarily on incoming inflation data. Officials currently expect headline inflation to pick up from its current low level, but should this take longer than expected they may consider further policy easing.

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.