Services PMI climbs to 3-month high of 52.2 in October on stronger orders

New Delhi: A spurt in new orders in October meant that growth in services sector activity reached a three-month high, showed the widely tracked Nikkei India Services Purchasing Managers’ Index (PMI).

Services PMI for October climbed to 52.2, swinging up from 50.9 in September. The 50-point mark separates expansion from contraction.

In October, an accelerated upturn in new work became pronounced. It underpinned a quicker rise in activity and jobs, according to a report by IHS Markit, compiler of the PMI survey.

Factory orders, which have continued to climb for eight months straight, reached a four-month high in November. On the other hand, the overall pace of expansion in new business in the private sector reached its second-highest level in two years. Favourable market conditions, a greater client base, and fruitful advertising were pointed out as some of the factors behind the latest rise.

However, volatility has remained a hallmark of the sector over the past one year. Growth has remained erratic as the latest rise was preceded by a three-month fall in the PMI. The sector has also seen contraction twice in the current calendar year as well as two separate months of very low growth. New business at services firms displayed the strongest upturn since July.

All this growth had a cascading effect on payroll numbers at services firms, which continued to see more hirings for the 14th straight month. However, in October, hiring growth was the second-fastest since March 2011. Job creation in the services sector continued to trump that in manufacturing.

But it was not enough to reduce the backlog of work at these companies, which continued to rise in October. The rate of backlog accumulation was the most marked in six months. Companies that reported higher levels of unfinished work mentioned delayed client payments as a key reason.

Conversely, goods producers made further inroads into their backlogs, which fell for the second straight month.

Costs go down from September’s 10-month high

The higher employee count had a spiralling effect on costs which had otherwise reduced. “A robust expansion in workforce – one of the best seen for over seven-and-a-half years – added to firms’ expenses,” Pollyanna De Lima, principal economist at IHS Markit, and author of the report, said.
Cost pressures faded in October, but service providers continued to report rising costs, especially for food and fuel. The waning of cost inflation, coupled with competitive pressures, resulted in only a marginal uptick in charges and moderated significantly from September’s 10-month high, Lima said.

With purchasing costs among manufacturers also rising at a slower pace, input price inflation across the private sector abated. Companies that raised selling prices mentioned the pass-through of greater cost burdens to clients. Nevertheless, some companies reported having avoided price hikes due to competitive pressures. By comparison, a marginal and softer increase in factory gate charges was recorded

On the other hand, growth in the manufacturing sector touched a four-month high in October, with PMI going up from 52.2 in September to 53.1 in October. Just like job creation in the services sector, factories saw more workers added to their rosters at the fastest pace since December 2017. The average cost burdens increased and some manufacturers passed part of the additional cost to their clients.

The Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, managed to rise, in keeping with the increases in overall output. It rose from 51.6 in September to 53.0 in October.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.