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

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. 

Optimism at highest level since 2018

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. 

Outstanding business volumes at Indian services companies rose at the fastest pace in 18 months in August, taking the current sequence of accumulation to eight months. 

Composite PMI Output Index goes up

With the manufacturing PMI reflecting strong growth in new orders and output during August as well, the S&P Global India Composite PMI Output Index rose from 56.6 to 58.2. The rate of inflation faced by manufacturing and services firms combined, hit by 19-month low in August. 

“New work intakes increased at quicker rates in the manufacturing and service sectors, leading to the fastest upturn at the composite level for nine months. Indian private sector jobs expanded to the greatest extent in over 14 years… driven by a substantial acceleration in growth across the service economy, while manufacturers registered a broad stabilisation of payroll numbers,” S&P Global said.