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HSBC India services PMI eases to 6-month low in October

05 Nov 2012 Evaluate

In signs that economic slump is not over yet, Service sector activity in India expanded at the slowest pace in six months in October, as weakness in the United States (US) and Europe hurt orders and forced firms to hire fewer workers. The services sector, which makes up nearly 60 percent of India's economic output, snapped its eleven consecutive month’s growth momentum.

According to the seasonally adjusted HSBC Business Activity Index, the service sector activity slowed to 53.5 in October, against September's seven-month high of 55.8. However, a figure above 50 signals increase in production while, a number below 50 indicates contraction.

Meanwhile, new orders at private sector companies in India expanded at a sharp rate.  Services companies signaled higher new business, citing strengthening demand, maintained brand reputation and good quality of services. Order book -volumes at manufacturing companies also expanded.

Additionally, job creation was recorded at private sector firms in India. However, the pace of growth was only slight and the slowest in three months. Meanwhile, workforces increased at both manufacturers and service firms, with the rate of expansion faster at manufacturing companies.

Extending the current inflationary period to 41 months, the composite data posted a further increase in output cost, but the rate of expansion was solid, but the slowest since April. Meanwhile, input cost inflation in the Indian private sector persisted during October, marking a 43-month sequence of rising costs. The rate of inflation in the service sector was sharp, and the quickest in four months.

The services sector slowed in October, but remained firmly in expansionary territory. Further, with inflation readings continuing to tick up, with higher raw material costs and solid demand keeping inflation pressures firm, the latter explains why the RBI remains hesitant about easing monetary policy.

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