Services PMI slid to 60.6 in Feb

Growth cools as new orders, output slow down; prices charged for services rose the slowest in 24 mths

With new orders slowing, the Purchasing Managers’ Index (PMI) for February slipped to 60.6, S&P Global said on Tuesday. The index was at 61.8 in January.

The services sector has over 53 per cent share in the Gross Value Added (GVA).

“Due to a slowdown in growth in new orders and output, services companies outlook for future business activity — while remaining strongly positive — weakened slightly. Prices charged for services rose at the slowest rate in 24 months as input prices inflation moderated,” Ines Lam, economist at HSBC, said.

The PMI is based on responses from purchasing managers of 400 companies. The index above 50 reflects expansion, while below 50 means contraction. The above50 index signalled ex

KEY TAKEAWAYS

The PMI for the service sector was 60.6 in February 2024, falling from 61.8 in January

The slowdown was due to lower growth in new orders and output, and weaker confidence in the future

Employment saw marginal rise but the pace of hiring was fractional and the joint-slowest in the current 21-month sequence of job creation

The PMI is based on responses from purchasing managers of 400 companies pansion well above the series history.

However, there is no good news on the job front. A report accompanying the index said companies created jobs on the back of rising workloads, but the easing of capacity pressures and lower confidence in the outlook dampened employment growth. “The pace of hiring growth was fractional and was the slowest in the current 21month sequence of job creation.

Survey members mostly indicated that workforce numbers were sufficient for current requirements,” the report said.

Based on granular data, the report mentioned that business activity increased across the service sector. Among subsectors, finance and insurance saw the strongest pace of growth by a considerable margin, while the slowest rise was in real estate and business services.

NEW BUSINESS INFLOW

February data highlighted a notable upturn in demand across the service sector, with inflow of new business increasing for 31 months running.

That said, like for output, the rate growth softened from January’s high while remaining wellabove the longrun average.

“New business from abroad placed with services firms in India rose for the thirteenth successive month. Survey participants reported gains from Australia, Asia, Europe, the Americas and the UAE. Collectively, international sales expanded at a solid rate, which was among the best in the nineandahalfyear series history,” the report said.

The survey also showed the secondweakest cost pressures in the sector since August 2020 and the softest increase in selling charges for two years.

Higher food, freight and labour costs pushed up input prices, according to anecdotal evidence. “Indian companies operating in the service sector sought to protect their margins by raising prices charged to customers. That said, the rate of inflation was slight, below its longrun average, and cooled to the weakest in two years,” the report said.

Business confidence in the yearahead outlook for activity weakened in February. Still, around 26 per cent of companies foresee growth and only 2 per cent anticipate a fall. Where optimism was signalled, firms cited buoyant client appetite, greater publicity and an improvement in customer relations.