Growth in the nation's service sector accelerated sharply in October based on Markit Economics' U.S. sample where the final composite score is 54.8, unchanged from mid-month and up sharply from September's 52.3. Strength in consumer spending is what respondents reported as well as a rise in both input costs and selling prices. New orders are at an 11-month high as is business activity while year-ahead expectations are at their best level in a year-and-a-half. Backlogs are also piling up. This report points to a very solid fourth-quarter start for the bulk of the economy. Coming up next this morning will be ISM non-manufacturing which last month reported a very solid ending for the third-quarter.
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.
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