IN: PMI Services Index

Fri May 04 00:00:00 CDT 2018

Actual Previous
Level 51.4 50.3

The Nikkei PMI survey for India's services sector indicates that conditions improved in the sector in April, with the headline business activity index increasing to 51.4 from 50.3 in March. The headline index for the Nikkei Manufacturing PMI survey, published earlier in the week, also showed an increase from 51.0 in March to 51.6 in April. Together, these moves resulted in the composite index increasing from 50.8 to 51.9.

The increase in the service sector headline index reflects a reported pick-up in the growth of new orders in the sector in April, with the manufacturing survey showing stronger growth in new orders. Both surveys also indicated stronger confidence about the outlook and improved labour market conditions, with service sector respondents reporting they added staff at the fastest pace in more than seven years and manufacturers reporting a rebound in payrolls after these had declined in March.

Input costs were reported to have risen at a slower pace for a second consecutive month in April in both the services and manufacturing sectors, with respondents to both surveys also reporting subdued increases in selling prices. This is consistent with official data that have shown drops in headline inflation since the start of the year.

Together the PMI surveys show stronger conditions in April, in line with the recent assessment by officials at the Reserve Bank of India that economic growth is likely to pick up in the fiscal year that started last month. However, although price pressures have moderated in recent months, officials continue to forecast headline inflation to turn higher again in the medium-term, suggesting that rate hikes may be considered later in the year. The RBI's next policy review is scheduled for early June.

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.