Services sector growth loses steam in April with slower rise in new orders

Services PMI down to 50.2 from 51.5 in March

The services sector saw its activities increase but at a slower pace in April, owing to a smaller rise in new work, shows the widely tracked Nikkei purchasing managers’ index (PMI) survey.

The predominant sector of the economy expanded for a third consecutive month in April. However, PMI stood at 50.2, lower than 51.5 seen in March. The 50-point mark separates expansion from contraction, indicating the health of the sector continues to be overall positive, the survey said.

Both outputs and new orders saw a softening in trend. “April PMI data for the Indian service sector show how jittery the current economic environment is, igniting concerns among some businesses, despite remaining in growth territory" Pollyanna De Lima, economist at IHS Markit and the author of the report, said.

On the other hand, factory activities continued to see an improvement, maintaining growth in April on the back of robust new orders even as the rate of growth remained unchanged at 52.5 . 

As a result, the Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, managed to stay positive. However, it was down to 51.3 in April from 52.3 in March, signalling only a slight rate of expansion in private sector activity in the country.

In the services field, while with ongoing growth of new work, additional staff was continued to be hired by companies, the rates of increase weakened. Job creation had only recently started to increase after remaining mostly dormant for many months. The number of new jobs eased and was below the long-run survey average. Similarly, figures on manufacturing employment, released earlier this week, increased at a softer pace.

On the price front, average input cost inflation slowed from March’s nine-month high amid reports of lower fuel prices partly

offsetting higher transport costs arising from lorry strikes. Conversely, the rate of charge inflation accelerated, the survey said.

"Service providers indicated that lorry strikes meant that prices paid for transportation and vegetables increased in April. That said, the overall rate of inflation eased since March." the report said. This reportedly occurred due to lower fuel bills curbing the intensity to which costs rose.

Service providers raised their own output charges (on average) in April. Selling prices have now increased for three months in a row. 

Meanwhile, backlogs of work at services firms increased slightly in April, extending the current period of accumulation to 11 months. Once again, the rise in outstanding business was linked by firms to pending client payments. By comparison, work-in-hand at manufacturers expanded at the slowest rate in the current 11-month sequence of accumulation.

As a result of these conditions, optimism among service providers have also been hit with 18% of survey participants anticipating lower activity in the year ahead compared with 21% that foresee expansion. Sentiment among manufacturers have, however, improved to a five-month high in April.

While service providers are still betting on new proposals, additional marketing campaigns and new offerings to boost growth, concerns towards the increasingly competitive environment have weighed on such hopes.