Services PMI up in April; optimism at 10 month high: HSBC

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Driven by rise in new businesses, services sector growth picked up momentum in April and business optimism hit the highest level since last June, according the HSBC services PMI (purchasing managers index) survey released here on Thursday.

HSBC's business activity index or services PMI, compiled by its service Markit, rose to 52.8 in April from 52.3 in March, the bank said in a statement. However, the report said though positive this is a below-trend rate expansion of services output.

The data come a day after the bank reported higher PMI for the manufacturing sector, which also showed growth inching up on rising orders.

The services index has been staying above the 50-mark which separates growth from contraction for six months now.

Services firms benefited from a rise in new business sub-index to 55.1 from 54.8 in March, allowing them to add jobs for the second month in a row and at the fastest pace since last June, said the bank.

"Services sector activity accelerated slightly in April on the back of a rise in new business, which supported a marginal pick-up in sequential employment growth. Moreover, survey respondents were significantly more optimistic about the outlook over the coming 12 months," HSBC chief economist for India and Asean Leif Eskesen said.

He added confidence regarding future business also rose to its highest in 10 months.

On Thursday, the bank said the manufacturing purchasing managers index inched up to 54.9 in April, from 54.7 in March, showing a positive move after three months of decline, despite the fact that the rate of expansion slowed fractionally, and was the weakest in 2012 so far.

Eskesen further said, service providers again expressed optimism regarding the one-year outlook for business activity, 'with around 54 per cent of survey respondents anticipating activity levels to be higher in the coming 12 months. As a result, the degree of positive sentiment jumped to the highest in 10 months'.

However, according to him, price pressures remain firm as rising input costs, mostly wages, are passed on to prices charged.

"Together with the April readings for manufacturing PMI these numbers suggest that inflation risks should remain a key concern for the Reserve Bank. This also means that the scope for further rate cuts is very limited, in our view, especially following the somewhat premature and too aggressive rate cut in April."

Meanwhile, manufacturing PMI data showed a slightly slower expansion of factory output in the month.

Consequently, the HSBC composite output index (covering manufacturing and services) remained broadly unmoved at 53.8 in April.

"The level of incoming new business placed at services providers rose in April, extending the current period of expansion to three years. Growth of new orders was marked, albeit slower than those rates seen in the first two months of 2012. With new work placed at manufacturers rising at a faster rate in April, the rate of new business growth at the composite level accelerated since March," said the bank.

Despite another month of new order growth, the service providers continued to report little pressure on their operating capacity, with volumes of work-in-hand (but not yet completed) falling marginally during the month.

In contrast, a sharp rate of backlog accumulation was recorded by respondents to the manufacturing PMI survey.