Macroscope – Services Purchasing Managers’ Index (PMI) – April 2021

Introduction to Services Purchasing Managers’ Index (PMI)

PMI, as an index, tracks and reflects changes in services’ volumes derived from a four-hundred company survey. Different elements are attributed distinct weights and the resultant index is accepted to be indicative of current business activity and projected confidence levels.

Being a diffusion index, it poses questions to measure changes in the volume of business activity versus headline figure in the month prior.

The index is considered important as an economic indicator helping compare a country’s activity competitiveness vis-à-vis peers.

Update: Services PMI Reading – April 2021

India Services PMI recorded 54.0 in April vs 54.6 in the month prior, touching its lowest levels in calendar year 2021. The services sector remained surprisingly favorable amidst intensification of the viral virus.

A reading above 50 denotes expansion and below 50 denotes contraction

Analyst Commentary

The services index in its current avatar strikes a delicate balance between today’s promises and tomorrow’s worries, as if reflected by rising new work arching against subdued optimism.

Ironically, business revival came amidst the steepest rise in overall expenses since December 2011. In fact, input costs have been on the rise for the last ten months on the back of pricier food, fuel and freight. The overall rate of input cost inflation was the strongest seen in close to nine-and-ahalf year.

The rebuttal merited passing of costs to consumers, but 98% of surveyed companies left fees unchanged. This helped expand sales as three out of five key service-oriented elements boosted top-lines, with Transportation-&-Storage taking the top spot. Communication and Real Estate (in spite of newly found momentum) were muted for the month.
A key measure to tackle rising costs was seen in declining payroll numbers. Employment fell for the fifth straight month, although at the weakest since the dawn of this decade. Rate of shedding was cushioned due to increase in outstanding business, even though it grew at its slowest pace over the last eleven months.

The private sector followed suit with rising new orders and job cutting (fourteenth consecutive month), as companies diverted efforts on fiscal sustainability and business continuum. Latest trends highlighted industries continued grapple with supply-chain constraints and material mismanagement, trickling into dampening business confidence levels. The pandemic pushed figures to its lowest since last October.

As is seen globally, manufacturing PMI continues to out-perform its services counterpart, courtesy of the latter being hit harder by Covid-19.

Key risks are visible in the possible imbalance between rising global prices and domestic case counts. Latency via unforeseen developments can disrupt demand footprints, as gap between input price inflation and charges stands at its widest since the global financial crisis.

Going ahead, the widening of vaccination programs will be instrumental in printing services sector’s next leg of growth. The numbers today highlight the nascent and fragile stage of recovery that the Indian economy is in. We continue to keep an eye on efficient implementation of public policies which can be expected to bolster the economy at large.

Click Here to read HIS Markit’s original press release on ‘IHS Markit India Services PMI’ for the month April, 2021