IN: PMI Services Index

Fri Nov 03 00:00:00 CDT 2017

Actual Previous
Level 51.7 50.7

The Nikkei PMI for India's services sector showed an increase in the headline business activity index from 50.7 in September to 51.7 in October. This was offset by a drop in the headline index for the Nikkei Manufacturing PMI survey, published earlier in the week, from 51.2 in September to 50.3 in October. Together, these moves resulted in the composite index advancing from 51.1 in September 51.3 in October. More details to follow.

The increase in the service sector headline index reflected solid new orders, which the survey indicates rose for a second consecutive month in October. The manufacturing survey showed new orders were flat in October. Both surveys showed modest gains in employment levels but weaker confidence about the twelve-month outlook, though respondents reported different views about the medium-term impact of the new goods and services tax introduced in July.

The surveys also showed stronger price pressures in October. Service sector respondents reported a pick-up in the growth of both input costs and selling prices, while manufacturers reported that their input costs and selling prices grew at the fastest pace since May and June respectively.

Together, the PMI surveys for October suggest that the services sector has rebounded strongly from the initial impact of the new tax but that conditions in the manufacturing sector are less robust. Employment growth, however, remains positive, and price pressures have strengthened. This will likely reinforce the view of officials at the Reserve Bank of India that additional policy rate cuts are not required in the near term.

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.