Growth of service sector eases to marginal pace: Nikkei India Services PMI

08-Oct-2018

Nikkei India Services Business Activity Index eases to 50.9 in September from 51.5 in August.

India’s service sector continued to expand during September, but at a marginal rate amid reports of underwhelming market demand. Price pressures intensified, with higher fuel costs and a stronger US dollar raising the price of imported goods.

Expectations remained in positive territory, whilst firms added to their staffing levels for a thirteenth successive month as part of efforts to keep on top of workloads.

The seasonally adjusted Nikkei India Services Business Activity Index recorded 50.9 during September 2018. That was down from 51.5 in August and the lowest reading in the current four-month sequence of rising activity.

Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index also recorded a fall during September. Posting a level of 51.6, the index was down from 51.9 in August and at its lowest level in four months. That was despite a slight improvement in the manufacturing sector, where output growth strengthened to a solid pace.

Weaker growth in the service sector was closely linked by panellists to a broad stagnation of new business. Companies reported that market conditions were underwhelming amid a lack of demand at a time of generally higher prices.

Broad sector data showed that underlying growth in activity and new work remained strongest in Information & Communication. In contrast, there were falls seen in the Finance & Insurance and Business Services categories.

September’s survey revealed another net increase in service sector operating expenses. Latest data showed that input prices rose to the greatest extent since last November amid reports of higher fuel costs. A number of panellists commented that the relative strength of the US dollar was raising the price of a number of imported goods.

In response, service providers raised their own charges. Average output price inflation was the strongest recorded since April and marked a twentieth successive monthly increase in prices charged.

Similar price trends were seen in the manufacturing sector. With fuel and imported goods in general up in cost, input prices rose to the greatest degree for three months, leading to slightly firmer increase in output charges.

Despite the slowdown in growth of activity and new business, capacity pressure in the service sector persisted as evidenced by another increase in backlogs of work. This encouraged companies to again add to their workforce numbers. September’s survey showed staffing levels rising for a thirteenth successive month, albeit at a modest pace that was the weakest since last November.

Although manufacturers recorded a slightly stronger increase in employment, the rise was insufficient to prevent a slowdown in overall jobs growth. Latest data showed the net rise in private sector employment was the slowest in over a year.

Finally, confidence amongst service providers about the year ahead remained inside positive territory. Around 22% of the survey panel signalled expectations for activity growth, with market demand forecast to strengthen. Marketing and the offering of high quality services should also bolster activity.

Commenting on the Indian Services PMI survey data, Paul Smith, Economics Director at IHS Markit, and author of the report, said:

“Growth of India’s services economy spluttered during September amid reports of faltering demand for services. And despite a slight pick-up in manufacturing output growth during the month, overall private sector activity rose at the weakest rate since May.

“Rising price pressures were cited as a factor weighing on market activity, with reports from panellists of rising fuel and import prices, in turn mainly driven by the stronger US dollar.

“Whilst companies were not completely discouraged to hire additional workers, the rate of employment growth was slower across the private sector as a whole and therefore pointed to a little more caution amongst firms heading into the final quarter of the year.”

Source: CAPITAL MARKET