Steep jump in employment aids services PMI, but risks remain
Premium- Tightening domestic financial conditions amid rising global headwinds present a challenge.
Business activity in India's services sector saw a sharp rebound. The seasonally adjusted S&P Global India Services PMI Business Activity Index rose to 57.2 in August from July’s four-month low of 55.5. A reading above 50 indicates expansion, and sub-50 print points to a contraction.
The improvement in the headline index was driven by stronger expansion in new work intakes and a quicker upturn in business activity. However, a key highlight of the August survey was the rate of job creation, which picked up to its strongest in over 14 years. The combination of strong sales and upbeat growth projections underpinned a substantial increase in payroll numbers across the service sector, said the survey report.
Note that the latest trend in services employment is a sharp contrast to the manufacturing sector's performance, where employment remained a weaker link, dragging the headline manufacturing PMI index down in August.
The resiliency in services activity came from a big jump in the employment indicator, said Rahul Bajoria, MD & Chief India Economist at Barclays.
According to Miguel Chanco chief emerging Asia economist Pantheon Macroeconomics for India's services sector, the near-term picture looks encouraging, particularly with the backlogs of working sub-index rising to an 18-month high and with the future activity component spiking upwards to 62.2, marking the first—though likely unsustainable—60.0-plus print since mid-2019.
Business confidence among Indian services providers strengthened substantially, reaching its highest since May 2018. The PMI report added that the optimism was centred on forecasts of ongoing improvements in demand and planned marketing. At the sub-sector level, there were quicker increases in new business and output in transport, information & communication and finance & insurance, it said.
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Even so, Bajoria cautions that services PMI moved up and ahead of the manufacturing PMI, establishing itself as the dominant driver of India’s growth recovery, but the tightening domestic financial conditions amid rising global headwinds present a challenge.
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