PMI: India's services sector growth hits 7-year high of 57.5 in February

Exports zoom but job growth at 3-month low

The services sector continued to ring in the good times in February as an uptick in exports and rising new orders resulted in growth touching a seven-year high, according to a monthly survey released on Wednesday.

The widely tracked Nikkei India Services Purchasing Managers Index (PMI) stood at 57.5 in February, up from 55.5 in January. In PMI parlance, the 50-mark threshold separates expansion from contraction.

But despite growth in every indicator, the sector saw the number of jobs created fall to a three-month low.

Services growth has continued to strengthen since November when it came out of a two-month spell of contraction. This has been in line with manufacturing activity, which mirrored a steep upward move of the growth curve in January when the PMI reached 55.3, the highest in nearly eight years.

February’s growth in services has been largely because of new international business that streamed in, allowing firms to recuperate from the high volatility in 2019, industry insiders said. Exports have continued to grow for most of 2019 despite headwinds. But in January, it had suffered a decline, after rising for 11 months on the trot. A number of panelists had mentioned weaker demand from China, Europe, and the US.

In February, new work intakes also expanded at the second-fastest rate in seven years. Policymakers would be happy to note that most new work orders came from the domestic market, thereby hinting at resurgence in domestic demand after a long period of economic decline over 2018. As a result, sales expanded for the fifth consecutive month in February.

Surveyed firms pointed out supportive economic conditions and accommodative public policies. Growth in consumer services growth was the most marked, after transport and storage firms had seen the biggest boost in the previous months.

Despite experiencing another increase in outstanding work halfway through the final quarter of fiscal year 2019-20 (FY20), service providers restricted hiring activity in February. Some companies reportedly left workforce numbers unchanged amid sufficient staff to cope with current requirements. However, employment figures still rose in four out of the five tracked sub-sectors, the sole exception being finance & insurance.

“Positive gains in new work across the manufacturing and service sectors suggest that private sector output will likely increase markedly again in March, boding well for final quarter GDP following expectations of a flat growth rate in Q3FY20.” said Pollyanna De Lima, principal economist at IHS Markit and author of the report. 
 

Firms, however, managed to expand their profits significantly since high growth in new business didn’t lead to equally high input inflation. Average input costs rose at a softer pace, down from February’s seven-year high rate. Survey respondents mostly attributed higher cost burdens to higher food, labour, material and oil costs. 

But, average prices charged for services increased less dramatically. Charge inflation was weaker than in January, with only 6 per cent of firms raising their fee, the survey said.

Overall, February saw the current run of inflation to 38 months. This meant that the gap between rates of input cost and output charge inflation still hasn’t closed.