The global service sector rate of expansion slowed again in June, as output rose at the weakest pace in five months. The J.P.Morgan global services business activity index edged lower to 53.5 in June, down from 54.0 in May. Although the rate of expansion in incoming new business ticked higher in June, it was only a slight improvement on May's four-month low.
Jobs growth also slowed, with staff headcounts rising to the weakest extent since March. Cost pressures increased in the global service sector, with the rate of input price inflation accelerating to a 17-month high. Part of the rise in costs was passed on in the form of higher charges which have now risen throughout the past two years. Business optimism dipped slightly in June. Although global service providers still (on balance) expect business activity to be higher in one year's time, the level of confidence eased to an eight-month low.
By nation, the upturn in global service sector activity during June was led by Ireland and the UK, both of which saw growth accelerate during the latest survey month. These nations were also the leading lights in terms of job creation. The slowdown in the US continued to June, with growth of services output slipping to a five-month low. However, the rate of increase in new business accelerated and jobs growth remained solid.
Conditions continued to improve in the euro area, with output and employment rising at, or near to, the fastest rates since the first half of 2011. The Asia service economies remained subdued in June, with output expanding only moderately in Japan and China and declines in India and Hong Kong. Meanwhile, Russia fell back into contraction and output in Brazil declined at the second-sharpest rate in the 100-month (Brazil) series history.
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.