US: PMI Services Flash

Tue Oct 27 08:45:00 CDT 2015

Consensus Consensus Range Actual Previous
Level 55.3 54.8 to 55.6 54.4 55.6

Growth in the nation's service sector is solid but a little slower this month than in September. The services PMI flash for October came in at 54.4 for the slowest rate of growth since the severe weather of January. The report cites a third straight slowdown in new business which is also at its weakest point since January. Though the service sector is insulated to a degree from foreign effects, the report does note that less favorable global conditions are making customers less willing to spend.

Backlogs are down for a third month which is the worst run in two years and hiring has slowed to the weakest level since February. The outlook, though still favorable, is near a three-year low. Price data show little change for inputs and only a fractional gain for prices charged. This report fits in with the general soft tone of economic data, softness that will perhaps be a key focus of tomorrow's FOMC statement.

Market Consensus Before Announcement
The services PMI flash has been holding solidly above 50 as domestic demand has yet to show any significant slowing from weakness in global demand. Employment, repeatedly described as robust in this report, has been an upside outlier. Not an outlier are final prices which in the September report posted their first back-to-back contraction in the six-year history of the report. A small 3 tenths decline to 55.3 is expected for the October flash.

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.