IN: PMI Services Index

Thu Oct 05 00:00:00 CDT 2017

Actual Previous
Level 50.7 47.5

The Nikkei PMI for India's services sector showed an increase in the headline business activity index from 47.5 in August to 50.7 in September. The index is now indicating expansion in the sector after two months of contraction following the introduction of a new goods and services tax by the Indian government at the start of July.

The headline index for the Nikkei Manufacturing PMI survey, published earlier in the week, was unchanged at 51.2 in September. Together, these increases resulted in the composite index advancing from 49.0 in August to 51.1 in September.

The improvement in the service sector headline index reflected a similar increase in the survey's measure of new orders, which indicated a small increase in September after declines in each of the two previous months. The manufacturing survey also showed stronger new orders in September.

Respondents to both surveys reported positive sentiment about the twelve-month outlook, although the service sector measure was somewhat weaker than in August. The surveys also point to stronger employment growth in both sectors in September, with the service sector survey's measure at its highest level in more than six years and the manufacturing sector survey measure at its highest since October 2012.

Both surveys suggest that margins tightened in September. Service sector respondents reported input costs grew at their fastest pace since March but were able to deliver only a modest increase in their selling prices, while manufacturing sector respondents reported a pick-up in input costs growth and again only a marginal increase in selling prices.

The PMI surveys for August show that there has been some recovery from the initial impact of the GST, with the pick-up in reported employment growth particularly encouraging. Nevertheless, conditions in both sectors remain relatively subdued, and firms remain under pressure from higher input costs. The Reserve Bank of India, at its policy review held this week, also noted that the GST had had an adverse impact on activity and could weigh on business investment in coming months. Concerns about the inflation outlook, however, convinced officials that policy rates should remain on hold for now.

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.