ALL: Global Services PMI

Wed Jan 06 10:00:00 CST 2016

Actual Previous
Level 53.1 54.1

The global service sector saw both output and new orders expand at the weakest rates for 11 months in December, with the moderation in new business growth especially sharp. The December reading for the global services PMI was 53.1, down from 53.9 in November. The average index reading through 2015 as a whole (53.9) was a shade lower than that for 2014 (54.1).

Output in the US expanded at the slowest pace for almost a year in December, while growth in China was only marginal and the weakest during the current 17-month sequence of increase. Rates of output expansion in the Eurozone, Japan and the UK either matched, or stayed close to, those registered in the prior month. In contrast, steep and accelerated downturns were signaled in Brazil and Hong Kong, while a faster decline in output was also signaled in Russia. France slipped back into contraction.

Growth of incoming new business also slowed to an 11-month low in December. Job creation which tends to lag trends in activity and demand accelerated nonetheless, reaching a three-month high. Staffing levels were raised in the US, the eurozone, the UK and China. Employee numbers were unchanged in both Hong Kong and India, but were cut back sharply in Russia and Brazil.

Consumer services was the only category to record a contraction in output during December, as growth of new orders slowed and employment stagnated. In contrast, business services and financial services companies recorded solid rates of expansion in activity, new business and employment.

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.