Services sector growth eases after hitting 6-month high in Dec: PMI data

India’s services sector growth declined marginally in January, after hitting six-month high in December, as output and sales grew at lower pace, while backlogs increased, a business survey by credit rating agency S&P Global showed.

The S&P Global India services Purchasing Managers' Index (PMI) declined to 57.2 in January from 58.5 in December.

Despite easing from December, rates of expansion in January remained historically elevated, much above its long-run average of 53.5.

Services PMI has been above 50-mark for 18 months in a row. PMI level above 50 shows growth in the sector while below indicates contraction.

January PMI data showed mild capacity pressures among the panellists, as backlogs rose further, but there was little change to employment levels. On the price front, there were slower increases in both input costs and output charges.

“The latest results highlighted some caution among service providers, partly evidenced from the vast majority of firms predicting no change in output from present levels. This somewhat subdued level of confidence towards the outlook, appeared to have stymied job creation in January,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Amid reports of greater output needs, some companies took on additional staff in January. However, hiring growth was restricted by mentions of adequate capacities for current requirements at other firms. The overall rate of job creation was fractional and one of the weakest in the current eight month sequence of expansion.

As per the monthly survey report, services companies noted a further increase in their expenses during January, which they attributed to higher costs for a wide range of materials, food and staff. Whilst remaining above its long-run average, the rate of inflation softened to a two-year low in January.

Underlying data suggested that the rise in total new business was centered on the domestic market, as international orders decreased.

New orders placed with services companies rose in January, albeit at a slower pace when compared with December. Favourable economic conditions, accommodative demand and marketing efforts supported sales, the survey data showed.

Business volumes rose for the 13th month running in January, and at the quickest rate since last August. That said, the latest accumulation was moderate as fewer than 3% of firms saw growth and the remaining no change.

Marketing initiatives, expanded capacities and predictions that demand will remain strong in the year ahead underpinned optimism towards growth prospects. However, the overall level of positive sentiment fell to a six-month low as the vast majority of panellists (80%) forecast no change in activity from current levels, the report said.