US: PMI Services Index

Wed Feb 04 08:45:00 CST 2015

Consensus Consensus Range Actual Previous
Level 54.1 53.5 to 54.3 54.2 53.3

Service sector growth is picking back up but only slightly in Markit's US sample, to 54.2 for the final January reading from 54.0 at mid-month and compared against December's 10-month low of 53.3. Though this index has been slowing from 60-plus peaks mid-year last year, the current rate of growth is respectable and sustainable.

A negative is sharp slowing in incoming new work to the slowest rate in the 5-year history of the report. On the plus side is solid growth in employment which underscores upbeat expectations for business growth over the year ahead. On prices, cost pressures are at their lowest since November 2010, the result of low fuel prices, while prices charged are showing only marginal traction.

Coming up next at 10:00 a.m. ET is the ISM non-manufacturing report which did slow in December but was very strong through most of the second-half last year. The ISM report also covers the construction and mining sectors.

Market Consensus Before Announcement
The Markit PMI services flash index for January came in at 54.0 versus December's final reading and 10-month low of 53.3 and December's flash reading of 53.6. The gain was tied in part to a pickup in consumer spending though new business growth in January continued to moderate to a new low in the 5-year history of the report. Amid the slowing, service providers in the sample continued to add to payrolls though at the slowest rate in 9 months. Growth in backlogs was at a 6-month low. Price data showed only fractional pressure for inputs and only fractional pricing power for outputs.

US Services Purchasing Managers' Index (PMI) is based on monthly questionnaire surveys collected from over 400 U.S. companies which provide a leading indication of what is happening in the private sector services economy. It is seasonally adjusted and is calculated from seven components, including New Business, Employment and Business Expectations.

Investors need to keep their fingers on the pulse of the economy because it indicates how various types of investments will perform. The Markit Services PMI provides advance insight into the services sector, which gives investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. The stock market likes to see healthy economic growth which generally translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures. The PMI data are also used by many Central Banks to help make interest rate decisions.

The Markit PMI Services Flash data give a detailed look at the services sector, the pace of growth and the direction of this sector. Since the service sector accounts for more than three-quarters of U.S. GDP, this report has a significant influence on the markets. In addition, its sub-indexes provide a picture of new business, employment, business expectations and prices.