Services PMI falls to 6-month low

Services contracted to a six-month low in February, as new work orders suffered amid weak demand, showed the widely tracked Nikkei Purchasing Managers Index (PMI) survey. The PMI for services fell from 51.7 in January to 47.8 in February.

Services, the dominating sector of the economy, contracted to a six-month low in February, as new work orders suffered amid weak demand, showed the widely tracked Nikkei Purchasing Managers Index (PMI) survey. This is the fourth contraction this financial year (2017-18).

But, firms continued to hire, seemingly considering the contraction to be an aberration.

The PMI for services fell from 51.7 in January to 47.8 in February, lowest since August. The index slipped below the 50-point mark, which separates expansion from contraction. It stood at 48.5 in November last year. PMI had fallen to 47.5 and 45.9 in August and July, 2017, because of adjustments after the goods and services tax (GST) roll-out.

Now, the question is would the decline in PMI affect gross domestic product (GDP) growth in the fourth quarter (January-March) for 201718. There is no direct relationship between the two. In the second quarter (July-September), PMI services declined in July and August; PMI manufacturing also declined in July. But GDP for the quarter grew 6.3 per cent. In the first quarter (April-June), GDP growth was only 5.7 per cent — though there was no contraction in PMI. Also, in the third quarter, though PMI services fell in November, GDP growth was at a fivequarter high of 7.2 per cent.

Experts are of the opinion that poor underlying demand affected activity.