US: PMI Services Flash

Tue Feb 24 08:45:00 CST 2015

Consensus Consensus Range Actual Previous
Level 54.2 53.8 to 55.1 57.0 54.0

A strong rebound in new work helped give a boost to Markit's US service sector sample where the index rose to a 4-month high of 57.0. This compares with 54.2 in final January at 54.0 in the January flash.

Hiring is up this month in the sample as are backlogs. The outlook, however, is at a 4-month low, echoing similar weakness in last week's Empire State and Philly Fed reports out of the manufacturing sector. Price readings remain low but did edge higher from January.

On weather effects, the report notes that heavy weather in the Northeast was offset by mild weather in the West. All in all, this report points to strength for the bulk of the economy.

Market Consensus Before Announcement
The Markit PMI services index edged up 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 was sharp slowing in incoming new work to the slowest rate in the 5-year history of the report. On the plus side was solid growth in employment which underscores upbeat expectations for business growth over the year ahead. On prices, cost pressures were at their lowest since November 2010, the result of low fuel prices, while prices charged were showing only marginal traction.

Purchasing Managers' Index (PMI) US Services Flash 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. This Flash Services PMI is based on approximately 85 percent of usual monthly replies and usually is released about a week before the final. It gives an early reading of conditions for the current month.

Investors need to keep their fingers on the pulse of the economy because it is a key factor for how various types of investments will perform. The Markit Services PMI Flash 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 because that 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 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.