June services sector growth fastest in eight months

Services PMI rises to 53.1 in June, up from 52.2 in May

Buoyed by sustained growth in new work, the services sector continued to boom ahead in June, growing at an eight-month high pace, the widely tracked Nikkei India Services Purchasing Managers Index (PMI) showed.

The PMI for the dominating sector of the Indian economy stood at 53.1, higher than the 52.2 registered in May - back then a seven-month high.The 50-point mark separates expansion from contraction, indicating that the health of the sector continues to be positive.

According to survey participants, improved demand conditions and marketing efforts enabled them to secure new work. Factory orders also rose, but to the least extent in four months.

In contrast, the manufacturing sector lost growth momentum in June, with the upturn in production moderating for the third month in a row to the weakest since February. Across the private sector as a whole, however, the upward trend in the rate of expansion for activity was sustained.

“With services being the prevalent sector in India, the fainter rise in manufacturing was more than offset and growth of private sector output climbed to an eight-month peak. What’s more, June’s figure contributed to the highest quarterly average for the composite PMI (52.2) since Q2 (FY) 2016. This suggests that GDP growth is likely to rebound from the sharp slowdown noted in the first three months of 2017." said Pollyanna De Lima, an economist at IHS Markit and the author of the report.

In spite of this, the Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors managed to remain positive. It rose from 52.5 in May to an eight-month high of 52.7 in June.

The sector also saw new jobs being created at the highest rate in almost four years, which cushioned the fall in the number of new jobs created in manufacturing. Job creation in June remained at a 47-month high. Job creation had only recently started to increase after remaining mostly dormant for many months.  By comparison, manufacturing jobs increased fractionally in June.

Amid reports of higher prices paid for food and fuel, average cost burdens at services firms increased further in June. The rate of inflation picked up to a three-month high. but remained below its long-run average. This, however, was a mild rise, the report said, and concurrently purchase costs faced by manufacturers rose at the slowest rate since last August.

"Service providers signalled higher selling prices (on average) in June. The rate of charge inflation was the joint-quickest in one year, on par with that seen in February, though marginal overall." the report said. In many cases, survey members reported the pass through of greater cost burdens to clients. Factory gate charges were also raised at a quicker, though marginal, pace.

Meanwhile, backlogs of work at services firms softened to the slowest in the past 13 months. Once again, the rise in outstanding business was linked by firms to pending client payments.

However, the level of positive sentiment fell to a four-month low. Likewise, confidence among manufacturers dipped in the current reporting period.