Services PMI shrinks for sixth month in a row in August; backlog in companies at record high

Services PMI rose to 41.8 in the month of August from 34.2 in July.

Even as the manufacturing PMI breaks the contraction trend, the services PMI continued to shrink for the sixth straight month in August 2020. However, the pace of fall was less severe compared to the previous four months. Beating the market expectations, the services PMI rose to 41.8 in the month of August from 34.2 in July. The ongoing coronavirus-led restrictions continued to hit client demand and business operations, said the IHS Markit report. The restrictions also contributed to a record increase in outstanding business while sustained revenue losses and increasing cost burdens led companies to raise charges for the first time since March.

“August highlights another month of challenging operating conditions in the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry,” said Shreeya Patel, Economist at IHS Markit. Output and new work continue to fall at solid rates, while restrictions meant that firms were often unable to complete projects and the backlogs of work accumulated to the greatest extent in almost 15 years of data collection, Shreeya Patel added. 

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The survey also showed signs of a potential recovery as business sentiment was neutral after being negative in the previous three months. Also, the employment fell at the softest pace since March. The services PMI paints the picture of the overall service sector by considering the business activity, new business, new export business, outstanding business, prices charged, input prices, employment, and future activity. 

“With new relaxing of activity restrictions in September, we expect services to improve faster than manufacturing in the coming months,” said a report by Barclays. The services PMI improved in tandem with the manufacturing PMI in August, though it continues to lag manufacturing activity, it added. Meanwhile, The Composite PMI Output Index, which measures combined services and manufacturing output, rose from 37.2 in July to 46.0 in August, and remained below the neutral 50.0 level, thereby signalling a fifth consecutive decline in private sector business activity.

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