Brazilian service sector contracts in October, PMI index falls to 48.8

Brazil’s service sector returned to contraction in October. The headline seasonally adjusted IHS Markit Services PMI Business Activity Index dropped to 48.8 in October from September’s 50.7, indicating a renewed contraction in output. The decline reportedly indicated subdued consumer sentiment amidst political and economic uncertainties. Although factory production grew higher, the rise was not enough to counter the reduction in services activity and private sector output drop.

New business at services companies dropped for the first time in four months, which panel members have linked to a competitive environment and a weak demand from both the public and private sectors. But the pace of contraction in new work was slight. On the contrary, goods producers saw the eighth straight monthly growth in order book volumes.

The decline in inflows of new orders at service providers occurred despite another monthly falls in selling prices. Underpinned by declining interest rates and staff costs, businesses tried to boost demand by charging less for their services. The drop in output prices was the third in several months, though just marginal. On the contrary, factory gate charges grew more, with inflation at a seven-month high.

Input costs facing services firms continued to grow, which panel members attributed to increased prices for fuel, energy, paper, steel and food. The pace of cost inflation continued to be elevated in the context of historical survey data. Purchasing prices at manufacturers also rose at a strong rate. Employment in services sector dropped for the thirty-second consecutive month. Buoyed by sustained rises in new work, factories created jobs for the first time in over two-and-a-half years.

The degree of positivity towards the year-ahead outlook for business activity dropped to a 19-month low in October, with private sector firms seeing uncertainty as a threat to growth outlook, stated IHS Markit.

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