Services slowed down in March, PMI down to 58.5

As growth in activity and sales saw marginal slowdown, Purchasing Managers’ Index (PMI) for services dropped to 58.5 in March as against 59 of February, data released by S&P Global on Friday showed. Weakest expansion in international orders also contributed in softening of Services PMI.

Trend in services was bit contrary to manufacturing which recovered the lost ground lost in February, picking up to its highest in eight months, at 58.1 in March as against 56.3 in the previous month. Both the indices are prepared on the basis of responses from purchasing executives of 400 firms each. Index above 50 means expansion, while below 50 index represents contraction.

Talking about trend in services sector, Pranjul Bhandari, Chief India Economist at HSBC, said that domestic and international demand remained fairly buoyant, despite being sequentially a tick lower than the month before. Meanwhile, “job creation and charge inflation both cooled during March,” she said. Services sector has largest share in Gross Value Added (GVA) with over 53 per cent.

The report highlighting survey results said hiring activity across the service economy was pared back in March. Employment still rose at an above-trend pace, albeit one that was the weakest in close to a year.

Several companies suggested that they had sufficient capacity for current requirements. On the price front, it said heightened competition not only restricted price pressures, but it was also identified by panellists as the main challenge to output prospects.

According to survey participants, output was supported by buoyant underlying demand and ongoing increases in new business. Sales rose at a softer pace than in February, albeit one that was still sharp.

At the sub-sector level, there was a broad-based increase in business activity and sales, with Finance & Insurance exhibiting the strongest growth trends, followed by Consumer Services. Underlying data indicated that the slowdown in growth of total new business reflected a weaker increase in international sales. New orders from abroad rose at the softest pace in 15 months.

Fierce competition and fading cost pressures suppressed charge inflation in March. Output prices rose at the weakest rate in three-and-a-half years.

Only 1 per cent of survey participants reported higher average fees than in February, with the remaining companies signalling no change, the survey report said.

According to Bhandari, looking ahead, business sentiment remains generally positive, but intensifying competition presents a significant challenge to many survey participants.