Brazilian service sector’s activity gains momentum in September, PMI index rises to 51.8

Brazilian service sector’s activity gained momentum in September, underpinned by improved demand. The headline seasonally adjusted services PMI index rose to 51.8 in September from August’s 51.4. The latest reading indicates a modest rate of growth that was nonetheless above the long-run survey average.

Anecdotal evidence pointed to the signing of large projects, better underlying demand and favourable economic policies. New work intakes rose at the most rapid rate in six months in September. According to panellists, the upturn in sales reflected expanded client bases and strengthening demand conditions. New orders rose in three of the five monitored subsectors, the exceptions being Transport & Storage and Real Estate & Business Services.

While total sales rose, new business from abroad continued to shrink. Nevertheless, the fall was fractional and the slowest in the current seven-month period of downturn. Aggregate employment in the Brazilian service economy rose further in September. Although moderate, the rate of job creation was the strongest in over four-and-a-half years; a period in which rises were just seen on four occasions. Payroll figures rose in three out of the five monitored sub-sectors, led by Finance & Insurance.

Expanded capacity enabled firms to lower outstanding business volumes in September, with backlogs down at a sharp rate that was widely similar to the one noted in August. Input costs continued to rise. Panellists report real deprecation as well as higher prices for fuel, car parts, construction materials, food and staff as the main drivers of inflation. The pace of rise in overall input costs rose to a four-month high and surpassed its long-run average. Sector wise, the sharpest rise was seen in Transport & Storage once again.

Looking ahead, services firms indicated that improved economic conditions, supportive public policies, greater investment, digital marketing and new technologies should translate into output growth over the course of the coming 12 months. The degree of optimism weakened to a three-month low, but was elevated in the context of the series history.