Job creation strengthens amid sustained rise in new work: Nikkei India Services PMI

Nikkei India Services Business Activity Index declines to 53.2 in December from 53.7 in November

India's service economy expanded further at the end of 2018, as strengthening demand continued to translate into new business gains. Although growth of new work and activity moderated from November's recent high, companies hired additional workers to a greater extent. Supporting the uptick in job creation was an improvement in business sentiment and easing cost inflationary pressures. Expenses rose at the weakest pace in over one-and-a-half years.

Despite falling to 53.2 in December, from 53.7 mid-quarter, the seasonally adjusted Nikkei India Services Business Activity Index pointed to an expansion in sector output that was among the strongest recorded in the past two years. The figure contributed to the highest quarterly average seen since Q4 FY 2015/16. Information & Communication remained the strongest performing category, posting the quickest increases in both new business and activity. Real Estate & Business Services was the only segment to record contractions.

 

The slowdown in growth of services activity was accompanied by a softer increase in manufacturing production, leading to a weaker rise in private sector output. The seasonally adjusted Nikkei India Composite PMI Output Index was down from a 25-month high of 54.5 in November to 53.6 at the end of the year.

Growth of services activity stemmed from ongoing increases in new business. Sales expanded at a slower pace than registered mid-quarter, but one that was among the strongest recorded in the past one-and-a-half years. At the same time, the upturn in factory orders held close to November's 11- month high.

Service sector data suggested that the upturn in total new business was domestically driven as new export work was broadly unchanged, following a reduction in the prior month. Conversely, manufacturers benefited from greater sales to external markets.

Whereas services firms took on extra staff, outstanding business rose further. But with employment growth accelerating to the second-quickest pace seen since last April, the accumulation in backlogs eased to the weakest in five months. On the other hand, a slower expansion in manufacturing jobs was noted, while work-in-hand increased to a greater extent.

Prices charged for the provision of services in India rose again at the year-end, as firms sought to share additional cost burdens with their clients. Despite being the highest in three months, the rate of output price inflation was marginal. Factory gate charges meanwhile was little-changed, ending a 16-month period of increases.

Cost inflation at services firms softened for the third straight month to the weakest since May 2017. With purchasing prices in the manufacturing industry increasing at a slower pace, aggregate cost inflation eased to the weakest in over two years.

Advertising efforts, new service offerings and predictions of an improvement in market conditions after the elections all boosted business sentiment regarding the 12-month outlook for activity. Furthermore, the level of confidence was the highest seen in three months. By comparison, optimism among goods producers moderated from mid-quarter.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, Principal Economist at IHS Markit, and author of the report, said: "India's service sector continued to enjoy positive levels of activity in December, with new business and employment remaining on an upward path. However, except for jobs, rates of expansion slowed slightly to form a somewhat disappointing end to 2018.

"Services companies took a breather from rising expenses as cost inflation eased to a 19-month low. This softening enabled firms to hire extra staff to a greater extent, whilst hiking their charges only marginally. In turn, subdued inflationary pressures and cooling economic growth add some support for a rate cut early next year.

With business sentiment improving for the second successive month, the service sector looks set to sustain growth in 2019 despite predictions of some sluggishness prior to the elections."

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