India's services activity slows in Nov but records 'fastest' job creation ever

Posting yet another impressive performance in November, India's service economy posted a strong 58.4 services PMI in November 2024, down only a fraction from the prior month’s 58.5, with the growth of new orders and output receding only fractionally, according to the latest HSBC PMI survey, conducted by S&P Global.

The Survey report shows that ongoing improvements in sales added to firms' capacity pressures subsequently boosting job creation in the month. Amid the hiring of permanent and temporary staff, employment growth reached a survey peak, it adds. "The downside to this unprecedented upturn in job creation was an intensification of price pressures." Besides, input costs rose to the "greatest extent" in 15 months, while selling prices increased at the fastest rate in close to 12 years.

"During November, services sector employment notably grew at the fastest pace ever recorded since this survey began in 2005. The hiring surge reflected the sector’s improving business confidence, growing new orders, and vigorous international demand. At the same time, high food and labour costs drove up input and output prices to their fastest rates in 15 months and nearly 12 years respectively," says Pranjul Bhandari, Chief India Economist at HSBC.

The HSBC India Services Business Activity Index is based on a single question asking how the level of business activity compares with the situation the month before. The Survey indicated a sharp rate of expansion that remained well above its trend. When explaining the upturn, survey participants remarked on demand strength and new business gains. "Total sales increased at a softer pace than in October, but the respective seasonally adjusted index was nevertheless more than four points above its long-run average and consistent with robust growth."

In terms of international demand, new export orders increased at a "solid rate" that was the quickest in three months, but well below those seen around mid-year. "Where growth was reported, firms noted gains from clients in Asia, Europe, Latin America and the US. To accommodate new business intakes, services firms continued to expand their operating capacities through recruitment drives."

Anecdotal evidence highlighted a combination of permanent and temporary hires in November, shows the Survey. "Overall employment rose at the fastest pace seen since the inception of the survey in December 2005. Amid reports of higher food and labour costs, service companies in India observed another upturn in business expenses midway through the third fiscal quarter."

The rate of inflation was sharp, the strongest in 15 months and above its long-run average, finds the Survey. This intensification of cost pressures reportedly prompted service providers to lift their own charges in November. On some occasions, companies suggested that hikes were supported by rosy demand. Output prices increased at the fastest rate in close to 12 years.

Steep rise in employment fuels price pressures

Private sector companies in India indicated that demand strength supported further growth of new business and output in November. Ongoing increases in sales continued to add to capacity pressures, which led firms to hire staff at the quickest pace since comparable data became available 19 years ago. Paired with rising input prices, labour costs exerted upward pressure on inflation.

"Overall expenses and output charges rose at the fastest rates in 15 months and almost 12 years respectively. The HSBC India Composite Output Index posted 58.6 in November, down only marginally from 59.1 in October and therefore indicating a sharp rate of expansion."

The goods-producing sector recorded a larger slowdown in growth, but still posted a faster increase than that seen in the service economy. The same trend was evident for new orders. Service providers signalled sharper cost pressures than manufacturers, and subsequently recorded the steeper increase in selling prices.