Service activity moves towards recovery in September; PMI at 49.8

At 49.8 in Sept from 41.8 in August, but contracts for 7th month in row

The Services sector continued to shrink for the seventh month in a row in September, but the rate of decline slowed considerably with the unlocking of the economy showed the widely tracked purchasing managers’ index (PMI). 

However, hiring continued to be low for the seventh month in a row as some firms reduced workforce and others did not find suitable candidates.

Services PMI stood at 49.8 points in September, higher than 41.8 in August. However, it was just below 50 points, which indicates contraction (a reading above 50 denotes growth). This was the highest reading of services PMI since March, when the Covid-induced lockdown started towards the end of the month. 

Since manufacturing PMI output rose to around 13-year high, the composite PMI output index climbed to 54.6 points in September against 46 in August, signaling growth across the private sector. 

Pollyanna De Lima, economics associate director at IHS Markit, said, “Private sector output expanded for the first time in six months during September, and at an above trend rate, while the increase in sales was the first since February. The news will be welcomed by policymakers, particularly following the pandemic-related 23.9 per cent contraction in GDP in the opening quarter of fiscal year 2020/21”.

Commentary associated with PMI said the latest reading in services PMI was indicative of broadly stable output across the sector. Monitored companies that saw growth credited reopening of business units, while those that reported a contraction highlighted the damage from the pandemic on demand.

Indeed, overall new business declined. The fall was the seventh in consecutive months, though moderate and the weakest since March, the commentary said.

New orders from abroad contracted as well, though at the slowest pace in six months. With hopes of a Covid-19 vaccine rising, companies were optimistic about the year-ahead outlook for business activity. September was the first month since April in which service providers were confident of growth prospects. 

While some firms lowered headcount because of decline in new work intakes, others were reported to have attempted to increase workforce but were not able to find suitable candidates. As a result, services employment decreased for the seventh month and at a higher clip than August. 

There was also a sharp rise in outstanding business at companies operating in the sector at the end of Q2 of FY21. Moreover, the rate of backlog accumulation was little-changed from August. The rate of inflation was broadly similar to that seen in the preceding survey period, thereby, remaining modest by historical standards. Companies that increased their fees indicated that additional cost burdens had been shared with clients.