Services have pulled up consumption – Newspaper Kommersant No. 140 (7341) dated 08/04/2022

With improved business activity in the services sector, the composite PMI rose to its highest since mid-2021 in July. The main reason for this is the increase in domestic demand. However, the demand for services, which increased from the second half of June, began to shrink again by the end of July. Growth in consumer lending and lower deposit rates may slow down the rate of decline in consumption.

In July, the service sector PMI index, according to a study by S&P Global, rose to 54.7 points from 51.7 points in June, demonstrating its highest value in more than a year. The main reasons for the jump in business activity in the sector were the rapid growth of new businesses and the increase in domestic demand, which exceeded the rate of decline in export orders. Growth in PMI in the services sector against the backdrop of its decline in manufacturing (see “Kommersant” dated August 3) led to an equally noticeable improvement in the overall composite index – to 52.2 points in July from 50.4 in June.

Meanwhile, judging by Sberindex (it measures the weekly spending of citizens on Sberbank cards), nominal spending on goods and services from July 25 to July 31 in annual terms increased by only 5.8% against 8.9% and 10. 6% in the previous two weeks. The slowdown in dynamics is primarily found in the consumption of non-food products (minus 5% versus plus 1.5% and 2.4%, respectively) and services (plus 10.7% versus 12.6% and 12.7%).

Thus, if from mid-June to mid-July the annual growth rate of consumption of services by citizens was actually at the level of inflation, then in the second half of July, real spending on them began to decline. As of August 1, consumer inflation in the country remained at 15.3% (as a week earlier), the Ministry of Economy estimated yesterday based on weekly measurements by Rosstat.

Sberindex data show that in the last two weeks of July, purchases of air tickets decreased most of all, and the rate of consumption of catering services (bars, cafes and restaurants) decreased in the week from July 25 to July 31 to 6.3%, against 27% on average in previous four weeks.

Only nominal spending on medical services and beauty salons increased slightly, remaining in a strong minus in real terms. Significant real growth in spending (more than 35%) in the last three weeks of July remains only for entertainment services, probably due to the redistribution of unfulfilled spending on non-food products.

Similar dynamics of consumer spending is also recorded by the data of the Romir study, according to which from July 25 to July 31, the average weekly nominal spending of citizens decreased by 1.4% compared to the previous week, and in annual terms increased by only 4.9% against 7, 2% a week earlier.

Against this backdrop, S&P Global notes that service providers shifted rising costs to customers in July, and business confidence of companies increased. Many of the respondents hope for an improvement in the economy as a whole and for a further increase in demand, but judging by the leading indicators of consumption, these expectations may not be realized. However, it is likely that the growth in consumer lending and lower deposit rates will continue to slow down the rate of decline in consumption.

Alexey Shapovalov