ALL: Global Services PMI

Thu Mar 03 10:00:00 CST 2016

Actual Previous
Level 50.7 52.8

The rate of expansion of global service sector business activity slowed to a 40-month low in February. The services PMI dropped to 50.7, a reading only moderately above the stagnation mark of 50.0. The slowdown was felt across the global services economy. Weaker rates of growth were signaled by the financial, business and consumer services sub-sectors, with output barely rising in either of the latter two. Although the increase in activity at financial service providers was comparatively solid, the rate of growth was only mild and below the long-run series average.

National PMI data suggested that the US had shifted from being a driver to a drag on global services output growth. US services activity fell slightly for the first time in almost two-and-a-half years. However, the underlying dynamics of the US survey were less negative than the headline reading. Indices tracking new business, employment and future activity all pointed to slower rates of growth as opposed to outright contraction. Three of the other national surveys reported lower activity; France, Hong Kong and Brazil with the downturn in Brazil especially severe. Service sector activity rose in the Eurozone, Japan, China, the UK and India, albeit at slower rates.

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.