US: PMI Services Index

Wed Aug 05 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 55.2 55.0 to 55.2 55.7 54.8

Service sector growth is accelerating, to 55.7 for Markit's July sample from a 5-month low of 54.8 in June. Strength in new orders leads the report along with a rise in backlogs. With gains in orders come gains in hiring which the report describes as "robust". But optimism in the 12-month outlook, perhaps rattled by the outlook for the global economy, is down for a second straight month to a 3-year low. Price news is mixed with cost pressures down amid complaints, however, of rising food prices and rising salaries.

The 54.8 headline is on the low side for this indicator but the comparison with June is still favorable for July. Coming up at 10:00 a.m. ET is the ISM non-manufacturing report which covers services as well as mining and construction.

Market Consensus Before Announcement
The services PMI is expected to end July at a very healthy 55.2. The flash report cited strength in new orders from both the consumer side and the business side with the latter offering one of the few hints of strength for business investment. A negative, however, was softness in the 12-month outlook in a reading that has since been confirmed on the consumer side with declines in the expectations components of both the consumer confidence and consumer sentiment reports.

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.