US: PMI Services Flash

Thu Jun 25 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 56.5 56.2 to 56.8 54.8 56.4

PMI services are down sharply in this month's flash, to 54.8 vs 56.5 in the final May reading. Growth rates for new orders and shipments, instead of showing a spring burst, are among the slowest this year. Optimism is understandably down, with the 12-month outlook sinking to below average.

Hiring remains solid but is at its slowest rate this year. Skill shortages are extending lead times for staff placements. Of special note is a jump in input costs and a corresponding 9-month high in pass through to final prices.

This report is a surprise, suggesting that June will prove to be a disappointing month for the economy and will not see an extension of the wide economic acceleration during May. This is an important reading for Markit's U.S. service sector report, offering a memorable early indication that, following subsequent data, will be interesting to assess.

Market Consensus Before Announcement
The PMI services flash for June is expected to show slight acceleration, to 56.5 from a final May reading of 56.2. This sample has been reporting very solid rates of growth and offers a reminder that the service sector has to help offset weakness in the export-hit manufacturing sector.

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.