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Service sector growth falls to 4-month low in April: PMI

Fall in new business is impacting growth, employment too continues to stagnate

Policy Pulse
Publish Date: May 4 2016 2:46PM | Updated Date: May 4 2016 2:55PM

Service sector growth falls to 4-month low in April: PMI

India's services firms’ growth fell to a four-month low of 53.7 in April from 54.3 in March on the back of new business growing slower than the previous months, a business survey showed on Wednesday.

 

Nikkei Markit Services Purchasing Managers' Index (PMI) had experienced a 19-month high rate of growth at 54.3 in January, which was again achieved in March. The seasonally adjusted index is a composite single figure indicator of service sector performance. A reading above 50 represents expansion, while one below this level means contraction.

 

The rate of growth in new business at services firms eased from March, when it had grown at the fastest pace in three years. In April, competitive pressures weighed on firms. 

 

Sub-sector wise, financial intermediation and post & telecommunication boosted services growth, while transport & storage sub-sector posted growth after a considerable period of stagnancy.

 

April data highlighted a general lack of pressure on capacity of Indian service providers, as unfinished business declined. The latest fall was the third in as many months, but the weakest in this sequence and fractional overall. 

 

The survey showed April was no different for job creation with almost all survey members reporting the same staffing levels as in March. Broadly, stagnant employment trends have been registered through the past nine months. Likewise, manufacturing payroll numbers remained unchanged.

 

For domestic services providers, reports of higher prices paid for fuel forced input costs to continue rising on an average in April, marking an eight-month sequence of inflation. Input cost inflation at services firms were at a 13-month high. Concurrently, purchase costs faced by manufacturers also rose to its highest since May, 2015.

 

The improving demand environment enabled service providers to continue to pass on to their clients’ part of the additional cost burden. However, in contrast to cost inflation, tariffs were raised at a slower rate.

 

Data released on Monday showed manufacturing output also lost steam in April after new orders dried up. This resulted in growth rates being slashed from the 8-month high of 52.4 in March to 50.50 in April. Consumer goods producers fared better than their counterparts producing intermediate and investment goods, who saw a decline in both output and new orders. 

 

The services data also brought down the Nikkei India Composite PMI Output Index to 52.8 in April, from 54.3 in March (37-month high), pointing to a softer expansion in private sector activity across the country.