Services sector slowed down a bit in January as Purchasing Managers’ Index (PMI) reached 57.2 in the said month from 58.5 of December. Despite this, January was eight successive months of expansion. However, this did not support job creation much.
Services followed the same trend as manufacturing for which PMI was down to 55.4 in January as against 57.8 of December. Services sector has a share of around 54 per cent while that of manufacturing is around 17 per cent. PMI is released by S&P Global Market intelligence and it is based on response from purchasing managers of 400 companies each in services sector and manufacturing sector.
According to the agency, despite easing from December, rates of expansion remained historically elevated. The latest results showed mild capacity pressures among panelists, 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.
“As seen earlier in the week from the manufacturing PMI results, growth across the service sector lost some momentum at the start of the year. Yet, the survey showed us that service providers received high amounts of new business which helped keep the overall rate of growth historically prominent,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.
The agency noted that 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 the joint-weakest in the current eight- month sequence of expansion, it said.
Further it mentioned that services companies witnessed 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.
Input cost inflation
De Lima said that demand resilience in turn meant that output also continued to expand at a generally strong pace. After re-accelerating in December, input cost inflation in the service economy retreated to a two-year low in January, aiding a slower and only moderate upturn in selling prices.
“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,” she said.
Talking about future, the agency said that 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 panelists (80 per cent) forecast no change in activity from current levels, it concluded.