Services PMI hits 3-month low in December

Services activity slowed to a three-month low in December, as the Covid-19 pandemic continued to weigh on fresh orders amid fading business optimism and employment faltered on liquidity concerns and weak demand.

The Nikkei-IHS Markit Services Purchasing Managers’ Index (PMI ) for services dropped to 52.3 in December from 53.7 in the previous month. But it still held above the 50-mark, which separates growth from contraction, for a third straight month. The drop in payroll numbers was the ninth in ten months.

The fall in services was in contrast with a marginal rise in the manufacturing PMI for December to 56.4 from November’s 56.3. Nevertheless, thanks to sluggish demand for services, composite PMI dropped to a three-month low of 54.9.

Poor demand compelled services firms to reduce prices despite a rise in input costs, which rose at their quickest pace since February.

The slowing services PMI adds to uncertainties about the strength of an economic recovery, as a clutch of high-frequency indicators—from industrial production, auto sales, railway freight and power demand to exports and core infrastructure sector growth—have exhibited mixed trends in recent months.

“It is clear that the early part of 2021 will continue to be challenging and we’re looking at a sustainable recovery and some return to normality once Covid-19 vaccines become available,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

Despite the upbeat view of companies about an improvement in output in 2021, the overall level of positive sentiment fell from November. “Anecdotal evidence suggested that optimism was curbed by uncertainty surrounding the Covid-19 pandemic, rupee depreciation and inflationary pressures,” the release said.

Sub-sector data showed that transport & storage, consumer services and finance & insurance as the brightest spots, where sales and output expanded in December. However, contractions were noted in information & communication and real estate.