Services PMI signals mild dip in July; output prices raised at fastest pace in 7 years

HSBC India Services PMI shows robust activity in July, with rising international sales and increased output growth optimism.

Services sector activity remained robust in July, with international sales growing at the third-fastest pace in almost ten years, even as rising input costs compelled firms to raise prices at a seven-year high rate, as per the HSBC India Services Purchasing Managers’ Index (PMI) that eased marginally from 60.5 in June to 60.3 last month.

A reading of over 50 on the seasonally adjusted PMI indicates an expansion in activity levels and July’s performance marks three years of persistent output growth reported by around 400 services sector players who are surveyed for the index.

Overall private sector activity, factoring in manufacturing firms, indicated a slightly slower pace of growth than June, with the HSBC India Composite Output Index cooling to 60.7 in July from 60.9 in June. Manufacturing activity led the upturn for the sixth successive month, but output prices were raised at the swiftest pace in nearly 11 and a half years in July with goods producers reporting higher cost pressures than services firms.

Stronger demand emboldened the surveyed services firms to raise output costs charged to customers yet again, as they faced a pick-up in cost pressures, particularly for labour and materials such as eggs, meat and vegetables, signalling the impact of high food inflation in recent months. While the overall rate of cost inflation was solid and faster than what was recorded in June, it remained below its long-run average, noted S&P Global Market Intelligence which conducts the PMI surveys since September 2014.

Favourable economic conditions and optimistic expectations for output supported a spike in recruitment among services firms, with hiring said to be the highest in almost two years. Job creation was achieved via the hiring of full-time and part-time staff, anecdotal evidence showed.

The sharp rise in international order flows was attributed by surveyed firms to fresh demand from countries like Austria, Brazil, China, Japan, Singapore, the Netherlands and U.S. Total new orders, including domestic contracts, expanded at a historically sharp pace, and firms linked the buoyancy in demand to tech investments and growing online presence.

“Service sector activity rose at a slightly slower pace in July, with new business increasing further, primarily driven by domestic demand,” noted Pranjul Bhandari, chief India economist at HSBC.