US: PMI Services Flash

December 19, 2016 08:45 CST

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Level 53.4 54.7

Growth in new orders, though still near a 12-month high, has slowed so far this month, pulling down the flash services PMI for December by more than 1 point to 53.4. But, given the comparison with November's unusual strength in new orders, the slowing is deceptive. Other readings in the report are clearly favorable including a gain in backlogs that has triggered a gain in hiring. Optimism is still weaker than average but is up from the record lows hit in June, boosted by orders and also by expectations for greater economic strength in the year ahead. Price data are also coming alive, with input costs up and selling prices showing rare traction. Despite the strength, today's report will likely lower expectations for December's ISM non-manufacturing report which was also unusually strong in November (the ISM will be posted in the first week of January).

Purchasing Managers' Index (PMI) US Services Flash 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. This Flash Services PMI is based on approximately 85 percent of usual monthly replies and usually is released about a week before the final. It gives an early reading of conditions for the current month.

Investors need to keep their fingers on the pulse of the economy because it is a key factor for how various types of investments will perform. The Markit Services PMI Flash 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 because that 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 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.