US: PMI Services Flash

Tue Aug 25 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 54.8 52.7 to 56.4 55.2 55.2

Service-sector growth is holding solid this month, well over breakeven 50 at 55.2 for the August flash vs Econoday expectations for 54.8. A negative is a marked slowing in new orders where growth is below average and the slowest since January. But hiring in the sample remains steady and solid and, in a positive indication for business investment, expansion efforts are underway to increase capacity. The 12-month business outlook improved in the month but is still among the weakest over the past 3 years, the likely result of rising concerns over the global economic outlook. Price readings are soft with prices charged flat for the weakest reading since June 2013.

Growth in this report has been trending lower this year but not substantially at least yet, though the latest weakness in new orders may be an early warning. The service sector is more important than ever to the health of the economy given building troubles in China and Asia and slowing in Europe.

Market Consensus Before Announcement
The services PMI is expected to ease 9 tenths of a point to a still very solid 54.8 for the flash August reading. New orders have been strong in this report which describes hiring as robust. This report is a reminder that the bulk of the economy is domestic based and insulated to a degree from exports and global markets.

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.