IN: PMI Services Index

Wed Jan 03 23:00:00 CST 2018

Actual Previous
Level 50.9 48.5

The Nikkei PMI survey for India's services sector indicates that the sector rebounded in December, with the headline business activity index increasing to 50.9 from 48.5 in November. The headline index for the Nikkei Manufacturing PMI survey, published earlier in the week, also advanced from 52.6 in November to 54.7 in December, its highest level in five years. Together, these moves resulted in the composite index rising from 50.3 in November to 53.0 in December, its highest level since October 2016.

The increase in the service sector headline index reflected an improvement in new orders, which the survey indicates were flat after falling modestly in November. The manufacturing survey showed strong growth in new orders in December. The two surveys showed stronger jobs growth in both the services and manufacturing sectors, employment growing in the former at the fastest pace since September and the latter at the fastest pace since 2012. Service sector respondents reported little change in their confidence about the twelve-month outlook after this rose to a four-month high in November, while the manufacturing survey showed confidence at a three-month high.

The two surveys showed divergent moves in price pressures in November. Input costs and selling prices were both reported to have risen at a slower pace in the services sector, whereas manufacturers reported both rose at a faster pace.

Together, the PMI surveys for December show that the manufacturing sector has recovered strongly in recent months after the government's new goods and services tax was introduced in July, whereas conditions in the services sector remain somewhat subdued. Service sector respondents have continued to cite the new tax as a factor weighing on demand. Nevertheless, the increase in the services survey's headline index, though modest, suggests that officials at the Reserve Bank of India will likely keep their main focus on the inflation outlook at their next policy meeting scheduled for early next month.

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.