Consumer services

Services PMI jumps to 53.6 in March, records strongest growth since December

The services sector performed better in March, with the Purchasing Managers’ Index (PMI) rising to 53.6 from 51.8 in February. This is the strongest expansion since December. However, there has not been much improvement in terms of job creation

This contrasts with the manufacturing PMI, which fell to 54 in March from 54.9 in February.

Both PMI data are released monthly by S&P Global ahead of comparable official economic data. Services have a share of 57% in gross value added (GVA), while it exceeds 14% for manufacturing industry. They are prepared by compiling responses to questionnaires sent to a panel of approximately 400 companies each from the manufacturing and service sectors. A diffusion index is calculated for each survey variable. The indices range between 0 and 100, with a reading above 50 indicating an overall increase from the previous month, and below 50 an overall decrease.

A report from S&P Global, accompanying the PMI, says India’s services sector growth continued to pick up in March as lockdown measures were lifted. Businesses recorded the fastest expansion in sales and activity in the current year so far, while business confidence remained subdued on inflation fears. Input costs rose at the fastest rate in 11 years at the end of the 2021-22 financial year, but companies mainly absorbed additional cost charges and increased their charges only moderately.

Pollyanna de Lima, associate director of economics at S&P Global, said the war in Ukraine has exacerbated lingering supply chain problems, triggering a further acceleration of inflation in India’s services economy. March results showed the biggest rise in input costs in 11 years, but that hasn’t dampened the sector’s recovery. “Supported by the easing of Covid-19 restrictions, consumers were eager to get out and spend. Service providers saw the fastest recovery in new business in 2022 so far, with a similar result for commercial activity,” she said.

Turning to employment, the report says that although the latest data points to a further decline in service sector jobs, the rate of contraction has slowed. The latest fall was only marginal, as the vast majority of survey members opted to leave headcount unchanged from February levels.

Finance and insurance were the best performing categories in March with the best sales and production trends. Real estate and business services were the weakest link, recording sharp and accelerating declines in new business as well as activity. Consumer services recorded the highest increase in input costs, while transport, information and communication recorded the highest rate of cost inflation.

According to de Lima, overall sales were supported by small adjustments to production costs. Consumers are likely to face a price spike in the coming months as rising costs trickle down to service charges. “Inflation risks continued to dampen business optimism about growth prospects, with service business sentiment remaining subdued by historical standards. This lack of confidence in the outlook has also meant that employment has continued to decline in March,” she said.

Published on

06 April 2022