Services sector activity expands again in August even as PMI falls to 60.1

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Services sector activity expands again in August even as PMI falls to 60.1.

India's services activity continued to expand in August but the purchasing managers' index (PMI) for the sector fell to 60.1, according to data released by S&P Global on September 5. At 60.1, the August services PMI is well below the over-13-year high of 62.3 posted in July.

However, it remains significantly above the key level of 50 that separates expansion in activity from a contraction. In fact, the services PMI has now spent 25 consecutive months above 50.

The PMI is a survey-based indicator based on the responses of around 400 service companies. The sectors it covers includes non-retail consumer services, transport, information, communication, finance, insurance, real estate, and business services. An index is calculated for each sector, all of which are then combined to give an overall PMI figure.

Given that the PMI measures change in activity from the previous month and is seasonally adjusted, it is seen as a good indicator of the momentum in economic activity. Further, it is the most immediately available data point – PMI for any given month, both for the services and manufacturing sectors, is released in the first week of the subsequent month.

In comparison, official data on economic activity – such as the index of industrial production or the index of eight core industries – are released with a lag of a month or more. PMI data is seen as a lead indicator of the state of the economy and policymakers often rely on it to inform their decisions.

The latest services PMI data comes three days after S&P Global said the manufacturing PMI increased to a three-month high of 58.6 in August from 57.7 in July. As a result, the composite PMI - which is a combination of the manufacturing and services indices - fell to 60.9 from 61.9 in July.