ALL: Global Services PMI

Wed Nov 04 10:00:00 CST 2015

Actual Previous
Level 53.7 53.3

October's global services PMI improved to a reading of 53.7, up from September's eight month low of 53.3. The data indicated slight improvements in the rates of growth of both global service sector business activity and new orders. However, this failed to prevent a further slowing in the pace of job creation the weakest for ten months and a dip in business optimism to a near three-year low. The headline index has remained above the neutral 50.0 mark for 37 months.

Business activity rose in ten out of the eleven countries for which October PMI data were available the exception being Hong Kong with accelerations signaled in eight of these (all except the US and Ireland). The fastest rates of increase were in Ireland, Spain, the UK and the US. Expansions were also seen in Japan, Germany, China, France, Italy and India.

The rate of increase in incoming new business improved slightly at global service providers. Combined with the slower pace of job creation, this led to a marginal increase in backlogs of work for the first time in three months. Staffing levels were raised in the US (albeit at the slowest pace in eight months), the Eurozone, the UK and China. In contrast, job losses were seen in Japan and Hong Kong, with the pace of reduction the fastest since December 2011 in the former and the weakest since August 2014 in the latter.

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.