US: PMI Services Index

Mon Jul 06 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 55.1 54.8 to 56.5 54.8 56.8

Activity in the services sector slowed in June based on the PMI services index which fell to 54.8 in May to signal the slowest rate of growth for the bulk of the economy since January. Output and hiring both slowed as did the 12-month outlook. And backlogs contracted for the first time since last July which is a negative for future hiring. Another negative is an increase in price pressures with food costs driving up inputs and finished goods showing their second strongest rise since September. A positive, though, is a 4-month high for new orders.

The June flash for this report, also at 54.8, offered a memorable indication of slowing in June which has since been confirmed by Friday's soft employment report and also softness in unit vehicle sales. The economy seems to have stalled slightly at the end of the second quarter. Up next will be the ISM non-manufacturing survey which tracks services along with construction and mining.

Market Consensus Before Announcement
The services PMI index proved prophetic, offering with its mid-month flash reading down 1.7 points to 54.8 the first striking indication that June, later confirmed by the employment report and by vehicle sales, would prove to be a soft month. Growth rates for new orders and shipments were among the slowest of the year in the services report. Watch for specific comments on hiring and whether service firms are having an increasingly difficult time finding new employees.

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.