US: PMI Services Index

Wed Jan 06 08:45:00 CST 2016

Actual Previous
Level 54.3 56.1

The services PMI slowed to 54.3 for the final December reading, well down from November's 56.1 but up 6 tenths from the December flash of 53.7. Growth in new orders came in at its slowest rate since the weather disruptions in January last year with some respondents citing a "wait-and-see" approach among customers. Though output is slowing and backlogs are being worked down, the sample is still adding employees at a solid pace. Price data are soft with both input inflation and output charges continuing to moderate. Another negative is an easing in business expectations to their least optimistic level since July. But the hiring in this report is clearly a positive and hints at what may be Friday's conflicting theme -- strong job growth amid slowing activity.

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.