US: PMI Services Index

Mon Apr 06 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 58.4 57.5 to 58.6 59.2 57.1

With exports on the decline due to weak foreign demand and the high value of the dollar, the service sector is increasingly the key to US economic health. And right now conditions look very solid with the PMI services index jumping to 59.2 in final March, up more than 1/2 point from the March flash reading and up more than 2 points from the final reading for February. The final reading for March is the strongest since August last year.

New orders, backlog orders, business activity and employment are all accelerating with inflation readings remaining dormant. One weakness, however, is a tangible easing in the business outlook, the result perhaps of troubles underway in the manufacturing sector and a factor that could slow future hiring.

Still, today's report is very strong and points to economic momentum going into the second quarter. Coming up at 10:00 a.m. ET is the non-manufacturing report from the ISM which, including the non-service sectors of construction and mining, both of which are soft, has been running less hot that the PMI services report.

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

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.