The services sector appears to be in the slow lane as the Purchasing Managers’ Index (PMI) dipped to a 10-month low of 57.7 in September as against 60.9 in August, S&P Global reported on Friday. However, the good news is that jobs were not impacted.
“India’s services PMI data showed that the services sector expanded at a slower pace in September. The headline Business Activity Index fell below 60 for the first time in 2024, but we note that at 57.7, it is still much above the long-term average,” said Pranjul Bhandari, Chief India Economist at HSBC. PMI is prepared on the basis of responses from purchasing managers of 400 companies. While an index above 50 means expansion, that below 50 indicates a contraction.
The survey found that total new business, international sales and output all rose at the slowest rates since late 2023. Among the main positive outcomes in September were solid job creation, strengthening business confidence and the weakest uptick in selling prices in over two-and-a-half years.
The survey highlighted that the solid increase in services employment seen since May was extended to September. Service providers reported the recruitment of full- and part-time workers, with both permanent and temporary contracts being offered, it said. “A long period of robust new business growth has led to strong labour demand,” Bhandari added.
Demand conditions will remain favourable in the year ahead, as businesses were more confident in the outlook for output. Moreover, the overall level of positive sentiment rose from August. In some cases, optimism was supported by projects pending approval and efficiency gains, the report added.
However, there was pressure on the price front. According to the survey report, fierce competition somewhat restricted charge inflation across India‘s service economy in September. Output prices rose, but did so to the smallest degree in over two-and-a-half years. This was in spite of a quicker increase in overall business expenses. According to panel members, outlays on electricity bills, food and other materials rose from August. Cost pressures were more pronounced in the Consumer Services segment, but the fastest rise in selling prices was recorded in finance & insurance.
“Services companies’ margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified,” Bhandari said. Retail Inflation based on the Consumer Price Index (CPI) was below the Reserve Bank of India‘s (RBI) 4 per cent medium-term target in July and August. It was predicted to average 4.2-4.6 per cent in each quarter until at least July 2026, various polls suggested.
A manufacturing PMI released on Tuesday dipped to an eight-month low of 56.5 in August, which along with the slip in services activity, meant the overall Composite PMI was its weakest since November last year. The composite index fell to 58.3 from 60.7 in September.