Services sector bounces back in August, creates most jobs in 14 years

Business sentiment in India recovers to best level since May 2018, as per S&P Global India Services PMI 

India’s services sector rebounded in August from a four-month low in July and created the highest jobs in 14 years as input cost pressures eased to the slowest pace in 11 months, as per the S&P Global India Services Purchase Managers’ Index (PMI), which expanded from 55.5 in July to 57.2 last month. A reading of 50 on the PMI indicates no change in business activity levels.  

While overall new orders increased for Services firms sharply from July, Transport, Information and Communication reported a faster spurt in new business volumes as well as output, with Finance and Insurance outperforming all other sub-sectors. 

The August performance of higher growth accompanied by decelerating input costs, has lifted sentiment among Services firms surveyed by S&P Global, as they revised upwards their forecasts for output levels a year from now, taking overall optimism to the highest level seen since May 2018. 

In July, the PMI survey had indicated that only 5% of companies expected output growth in the year ahead, compared to 9% in June, when the index had hit an 11-year high of 59.2.   

While consumer services faced the highest input cost inflation, Transport, Information & Communication services recorded the fastest rise in selling prices, said Ms. Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

“With demand showing considerable resilience, service providers maintained a degree of pricing power and lifted selling prices amid the transfer of cost increases to customers,” she noted, adding that the rate at which service providers passed on higher charges to customers was broadly similar to July.   

Compelled to increase prices to protect their margins from cost pressures, firms lifted selling prices in August with some signalling that their price revisions were backed by ‘accommodative demand conditions’, that is buyers were willing to fork out higher prices.