PMI recommends Services activity has reached a 12-year high

In February, India’s Purchasing Managers Index (PMI) for the services sector increased to 55.3. The PMI in the services sector has reached its highest level in 12 years, owing to an increase in new business orders and employment.

Purchasing Managers’ Index

  • The PMI is a measure of business activity in both the manufacturing and service sectors.
  • S&P Global compiles the S&P Global India Services PMI from questionnaire responses from a panel of approximately 400 service sector companies.
  • It is a survey-based metric that asks respondents about changes in their perception of certain key business variables from the previous month.
  • It is calculated separately for the manufacturing and services sectors before being combined to create a composite index.

How is the PMI calculated?

  • The PMI is calculated using a series of qualitative questions.
  • Executives from a large sample of hundreds of firms are asked to rate whether key indicators such as output, new orders, business expectations, and employment were stronger than the previous month.

How should the PMI be read?

  • A figure greater than 50 indicates an increase in business activity. Anything less than 50 indicates contraction.
  • The greater the deviation from this midpoint, the greater the expansion or contraction. The rate of expansion can also be determined by comparing the PMI to the previous month’s data.
  • If the figure is higher than the previous month’s, the economy is growing faster. It is growing at a slower rate if it is lower than the previous month.

Recent Service PMI Trends

  • The headline figure was above the neutral 50 mark for the 19th month in a row, indicating expansion.
  • Cost pressures eased significantly, with input prices rising at the slowest rate in nearly two and a half years and output charge inflation falling to a 12-month low.
  • Nonetheless, capacity pressures remained mild, and job growth was only marginal.
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