Growth of global service sector business activity eased to a three month low in May, as the sector lost further momentum following March's recent high. Despite slowing, the rate of expansion remained solid overall, supporting further job creation. Employment rose at the fastest pace since late-2007. The J.P.Morgan Global Services Business Activity Index reading was 54.1 in May, down from 54.8 in April, but remained above the neutral 50.0 mark for a thirty-second straight month. The US and the UK remained two of the prime drivers of the expansion, despite seeing their rates of growth ease to four- and five-month lows respectively. Spain also reported a marked increase in business activity.
Growth in the Eurozone eased (on average) during May. Apart from the slower expansion in Spain, rates of increase moderated in Germany and Italy. Growth in the French service sector ticked higher. Japan and China both reported increases in output. Despite accelerations since April, growth remained below the global average. India and Hong Kong contracted, while Russia continued to recover. The downturn in Brazil deepened, with business activity falling at the fastest pace in over six years.
New business continued to rise at a solid clip in May, despite the pace of increase easing to the weakest since January and edging back below the survey average. Backlogs of work were broadly unchanged, while business optimism remained close to its long-run trend level. Cost inflation rose to an 11-month high in May. Companies offset this, in part, through increased selling prices.
JP Morgan Global Services PMI gives an overview of the global services sector. It is based on monthly surveys of over 5,500 executives from 15 of the world's strongest economies, including the U.S., Japan, Germany, France and China which together account for nearly 80 percent of global services sector's gross value added (GWA). It reflects changes in global output, employment, new business, backlogs and prices. The Global Services PMI is seasonally adjusted at the national level to control for varying seasonal patterns in each country and is produced by J.P. Morgan and Markit in association with ISM and the International Federation of Purchasing and supply Management (IFPSM).
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. The J.P. Morgan Global Services PMI provides advance insight into the global services sector, which gives investors a better understanding of business conditions and valuable information about the economic backdrop of global markets. The stock market likes to see healthy economic growth because that 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 JP Morgan Global Services PMI data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the services sector accounts for the lion's share of GDP of many advanced economies, this report has a big influence on the markets. In addition, its sub-indexes provide a picture of global output, employment, new business, backlogs and prices.