US: PMI Services Index

Mon Oct 05 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 55.8 54.8 to 58.0 55.1 56.1

Growth in the service sector is slowing but remains very solid, based on the services PMI which came in at 55.1 for the final September reading, down 1/2 point from the mid-month flash and down 1 point from final August. Growth in new orders and production both slowed slightly but growth in employment, in contrast to last week's employment report, is still described as "robust". Optimism in the business outlook is still strong though shows the least strength since June 2012. Price indications, like in nearly all other surveys, are depressed with finished prices posting the first back-to-back decline in the six-year history of the series.

There are indications of slowing in this report but nothing severe. The signal on hiring is not being confirmed by government data though price indications are. This, unlike manufacturing reports, is a domestic-based report and continues to point to fundamental resiliency for the economy.

Market Consensus Before Announcement
The services PMI has been running in the mid-50s to indicate very solid growth in composite activity and the Econoday consensus is calling for a September reading of 55.8. But new orders have been slowing and service providers have been working down backlogs to keep busy. It hasn't stopped the sample from hiring, however, which the report has been describing all year as "robust". Price readings have been in contraction.

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.