US: PMI Services Flash

Thu Mar 26 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 57.0 56.2 to 57.3 58.6 57.0

The manufacturing sector may be sputtering but not the service sector, based on Markit's flash PMI which is up strongly for a second straight month, to a 6-month high of 58.6 in final March vs 57.1 in final February (57.0 February flash). The final reading for January was 54.2.

Respondents are citing improvement in economic conditions, strengthening consumer confidence, and new product launches as pluses. New orders are at a 6-month high and backlogs are at a 5-month high. Employment is also up.

A negative however, and one seen in other data, is a downgrade in expectations. Those seeing a rise in business over the next 12 months is the lowest since June 2012.

The downgrade in expectations is likely tied to the weak start of the year, weakness however centered in the effect of lower exports on manufacturing. The service sector, which has very little exposure to the export market, remains healthy and could on its own offset foreign-related weakness.

Market Consensus Before Announcement
The Markit PMI services index picked up noticeably in February to a 4-month high of 57.1 versus 54.2 in January. The final reading for February was little changed from the flash estimate of 57.0. Both new business and output were at 4-month highs, reflecting what the report says are stronger customer demand and improving economic conditions.

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.