Source: Markit Economics

China's private sector activity growth in January, while primarily supported by a strong expansion of manufacturing production, services output continued to rise markedly on the month. India's service sector activity growth accelerated in January, supported by further sharp increase in new work.

China: The seasonally adjusted HSBC China Composite Output Index climbed to 59.0 in January, its highest level since last August and one indicative of a substantial rise in business activity amongst Chinese private sector firms. Activity growth was primarily supported by a strong expansion of manufacturing production, although services output continued to rise markedly on the month. This was signalled by the HSBC Business Activity Index, which posted 56.8 at the beginning of 2010.

January data signalled that incoming new business taken by Chinese service providers rose again, increasing at a robust rate that was unchanged on the month. This, combined with a near-record rise in new orders received by manufacturers, meant that overall new workloads rose at the third-fastest rate in the series history.

Levels of outstanding work at Chinese service providers rose for the second successive month in January. Although only modest, the accumulation of backlogs was the fastest since the inception of the series in November 2005. Subsequently, work-in-hand in the wider private sector also rose to the greatest extent in the series history.

Staffing levels in the Chinese service sector continued to rise in January. The rate at which firms added to their workforce numbers was solid, and the fastest in four months. However, a slower rise in manufacturing headcounts meant that overall employment growth eased to the slowest since last August.

Average input costs faced by Chinese service sector firms rose for the third month running in January, increasing at a solid rate. Prices paid for raw materials were reported to have risen on the month, while panellists also noted that labour-related costs were higher than one month previously. Meanwhile, input cost inflation in the manufacturing sector accelerated to the fastest since July 2008.

Output prices set by Chinese service providers rose in January following a slight fall in the previous month. In contrast, output price inflation in the manufacturing sector was considerable, having accelerated to the most marked in eighteen months. This led the composite measure for output prices to its highest since July 2008.

Commenting on the China Services and Composite PMI data, Hongbin Qu, Chief Economist for China at HSBC said:“Despite the slight moderation in the January HSBC China Services PMI, new business stayed robust in line with strengthening domestic demand. Continuous employment expansion, plus the upcoming Chinese New Year, should lend further support to consumption demand in the months ahead.”

The HSBC China Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.

Source: Markit Economics

India:Up for the second month running, the headline seasonally adjusted HSBC Business Activity Index for services posted 59.0 in January – its highest level since September 2008. The latest reading pointed to a considerable expansion of output, which respondents linked to higher volumes of new business. However, growth remained weaker than the pre-crisis trend. Manufacturing production also rose at an accelerated pace, and one that was above its pre-downturn average. Reflecting the sector data, the HSBC India Composite Output Index reached a sixteen-month peak.

Incoming new work to the Indian service sector increased for the ninth month running at the start of Q1. Growth was sharp, and little-changed from the rate recorded in December. Reports suggested that demand was supported by better economic conditions, successful marketing activities and service firms’ strong reputations for quality. Meanwhile, new orders taken by manufacturers expanded at the fastest pace since August 2008. The Composite New Orders Index climbed slightly to show a sharp rise in all-sector new business.

Employment at Indian service providers increased in January, extending the current period of expansion to ten months. Growth accelerated slightly since December, but remained only moderate and weak in relation to the pre-financial crisis trend. Anecdotal evidence indicated that stronger demand for services necessitated the hiring of more workers. Staffing at manufacturers rose only marginally on the month. Consequently, the Composite Employment Index signalled modest growth of total personnel numbers.

Service firms raised their charges in January, either to expand profit margins or to pass on part of their greater cost burdens to customers. Companies have increased their tariffs in seven of the past nine months, and the latest round of inflation was the sharpest since September 2008. Charges for Indian manufactures also rose, but at a sharply accelerated pace. The Composite Output Prices Index rose for the second straight month to its highest level since September 2008 and signalled a solid rate of inflation.

Input prices faced by India’s service providers climbed for the tenth successive month during the latest survey period. Moreover, inflation accelerated to a marked pace. Panel members reported that higher wage and raw material costs were behind the increase. Greater prices for food products, medicines and drugs were highlighted by several firms. Meanwhile, manufacturers reported a series-record increase in their purchasing costs. The Composite Input Prices Index signalled the fastest overall inflation for a year-and-a-half.

Commenting on the India Services and Composite PMI data, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said: “The key business activity index continued its march deeper into expansionary territory in January and is once again consistent with double-digit output growth in India's service sector.

“With the manufacturing PMI also strengthening further over the last couple of months the ex-agriculture segment of the economy looks to have well and truly shaken off the spillover effects from a drought-ravaged agricultural sector. After a relatively soft quarter of GDP growth in October-December last year, we expect the economy to be back on track in the final quarter of the fiscal year and expand 8.5% in 2010/11.

“Stronger growth is, however, leading to bigger price rises in the service sector, just as it is in manufacturing. It is interesting to see that more companies are mentioning higher wages as a contributing factor. In our view a repo/reverse repo rate rise in not too far away.”

The HSBC India Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies. The panel has been carefully selected to accurately replicate the true structure of the services economy.