Services activity dips to 3- month low, says Nikkei

Activity in the services sector reported a contraction in growth for the first time in last three months due to weak demand and stagnation in fresh orders, a private survey showed. However, it noted that business optimism among the service providers was the strongest since January 2015.

The seasonally adjusted Nikkei India Services Business Activity Index fell from 51.4 to 49.6 in May. A reading above 50 indicates expansion in activities while a reading below 50 suggests contraction.

Despite weak demand conditions, the survey showed that the service providers continued to recruit employees further during May. However, the job creation was modest and the weakest in 2018 so far. Jobs growth was evident across all monitored broad sectors, with the sharpest increase in Information & Communications.

“The slowdown in service activity fed into the labour market, as jobs growth moderated from April’s seven- year high. A bright spot of the services PMI data was that business sentiment was the strongest since January 2015, rooted in expectations of improvements in demand conditions in the year ahead,” said Aashna Dodhia, economist and author of the survey report.

Input prices rose across the service sector during May, thereby extending the current sequence of inflation to 21 months as salaries and prices of fuel and vegetables increased during the survey period. “Despite a sharper rise in input prices, service sector output charge inflation moderated to an 11month low. This highlighted that firms were unable to fully pass on higher cost burdens to price- sensitive customers,” the survey said.