US: PMI Services Flash

January 26, 2017 08:45 CST

Actual Previous
Level 55.1 53.4

An increase in new orders and special strength in business activity helped lift the services PMI to a very solid 55.1 for the January flash. This is well over breakeven 50 and points to the strongest rate of growth since November 2015.

Despite the rise in new orders, backlog orders remain flat, a factor that may have cooled hiring which, though solid, came in below December's 15-month peak. Price readings are mixed with input costs up but selling prices flat.

But the message of this report is one of strength and optimism with the business outlook especially positive.

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.