Services activity shrinks for 4th month in June

With a PMI score of 33.7, sector remains in deep downturn

Services activity contracted for the fourth consecutive month in June as poor domestic demand and low export orders kept the sector in a deep downturn. The IHS Markit Services Business Activity Index (Services PMI) remained contractionary, despite rising to 33.7 in June, up from 12.6 in May and just 5.4 in April. In PMI parlance, a reading above 50 indicates expansion, and less than that threshold indicates contraction.

Services activity contracted for the fourth consecutive month in June as poor domestic demand and low export orders kept the sector in a deep downturn i n the aftermath of the nationwide lockdown, showed a monthly survey released on Friday.

The IHS Markit Services Business Activity Index (Services PMI) remained contractionary, despite rising to 33.7 in June, up from 12.6 in May and just 5.4 in April. In PMI parlance, a reading above 50 indicates expansion, and lesser than that threshold indicates contraction.

Extended shutdowns and weak demand hurt output in June.

Although the downturn lost momentum, it remained strong as the Covid-19 pandemic curtailed intakes of new work and disrupted operations.

“The slower rate of decline was reflective of some stabilisation in activity levels, with around 59 per cent of firms reporting no change in output since May. Meanwhile, only 4 per cent registered growth, while 37 per cent recorded a reduction,” according to the survey.

New orders fell at a sharp pace in June. Firms attributed this to reduced consumption and lower requirements of key clients. The survey also said in some cases, customers had closed their businesses because of the unfavourable environment.

While domestic demand was soft, export orders, too, continued to fall. Restrictions related to travel hindered foreign orders, according to anecdotal evidence, the survey pointed out.

As a result, lay-offs of workers continued across the sector. Job losses were attributed to lower business requirements, although some companies reported poor staff availability, according to the survey.

Before the lockdown, experts had high hopes for the services sector, which scaled an 85-month high in February with rising new orders from foreign markets resulting in stable growth. But job growth had stagnated in recent months with employment generation falling to a three -month low even during February’s boom.

In the latest month, there were signs of capacity pressures building as outstanding contracts rose, despite overall activity falling sharply.

As conditions deteriorated in June, surveyed companies became more pessimistic in outlook of the next 12 months.

Business confidence slid to a survey low and also pointed to negative expectations of activity levels in the year ahead. The risk of a protracted recession was commonly noted by firms.

Lastly, prices data showed deflationary trends across both input costs and output charges midway through the June quarter.

Lower expenses were passed on to clients via discounts in June. Selling charges fell modestly, like in May.

Earlier this week, a similar survey showed that manufacturing activity contracted for the third month in June. Manufacturing PMI stood at 47.2, up from 30.8 in May, showing slow but sustained rise.

The seasonally adjusted IHS Markit Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of the country’s gross domestic product, rose to 37.8 in June, up from 14.8 the previous month.

It had crashed to a record low of 7.2 in April.