Services PMI rises to 21-month high

The sector's output had cooled sharply in February after a 19-month high in January

Growth in India’s services firms rebounded in March, rising to 54.3 after a sudden contraction of 51.4 in February, as new business increased markedly, a business survey showed on Wednesday.

The seasonally adjusted Nikkei/Markit Services Purchasing Managers’ Index (PMI) has experienced a straight ninth month above the 50 level that separates growth from contraction.

In March, incoming new work in the Indian private-sector economy rose at the fastest pace in three years. This reflected on sub-sector growth as Markit reported that five of the six major sectors witnessed growth, apart from transport & storage, which continued to lag.

The survey showed March was not different for job creation compared to previous months. The employment sub-index has more or less remained at the 50-mark throughout 2015-16. However, higher workloads encouraged service providers to hire additional staff for the third successive month. Job creation across the private sector as a whole was seen for the sixth straight month, but the rate of growth remained fractional overall.

“One disappointment is the trend in employment, which showed little change through much of 2015-16. With the sole exception of the mild increase in hiring seen among service providers last July, the two surveys collectively have signalled a broadly stagnant labour market for the past two years,” said Pollyanna De Lima, economist at Markit and author of the report.

The March data also highlighted the ongoing spare capacity in India’s service economy, as unfinished business fell for the second consecutive month. Moreover, the rate of backlog depletion was sharp and the most pronounced since March 2009. Work-in-hand at manufacturers declined for the first time since last October.

In comparison, China’s service sector strengthened in March, but employment fell for the first time in 2.5 years. Beijing is counting on the services sector to offset prolonged weakness in manufacturing. The Caixin/Markit services PMI for March rose to 52.2 from February’s 51.2, as new business continued to expand modestly. The employment sub-component, however, slipped to 48.9 from 51.3, pointing to the first contraction in staffing levels since August 2013.

For domestic services providers, reports of higher prices paid for a range of raw materials forced input costs to continue rising on average in March, marking a seven-month sequence of inflation. Input costs across the private sector rose at the quickest rate in three months and charge inflation likewise accelerated, hinting at headline inflation picking up in the coming months, said De Lima. Concurrently, purchase costs faced by manufacturers also rose at a three-month high rate.

The improving demand environment enabled service providers to continue to pass on to their clients’ part of the additional cost burden. Tariffs were raised at a slightly faster rate than in February, but at a modest rate. After offering discounts in the prior month, manufacturing companies raised their charges in March, again nominally.

India’s manufacturing growth registered an uptick in March, rising to 52.4, mainly due to rise in new orders after remaining unchanged in February. The March data showed that along with improved domestic demand, producers also recorded an increase in new export business. Production growth was at the fastest since August 2015, amid a stronger upturn in new business inflows. The latest expansion witnessed consumer goods posting the quickest rate of increase.

New business inflows increased at a solid pace. The last time that manufacturing had recorded a contraction was in December 2015.

The services data also buoyed the Nikkei India Composite PMI Output Index, which climbed from 51.2 in February to a 37-month high of 54.3 in March. However, the reading was well below the long-run series average (55.7).