Activity in the global service sector expanded at a solid pace in December. An ongoing upturn in output was underpinned by stronger inflows of new work and improved business confidence, all of which supported further job creation. The December reading was unchanged at 53.3 from November, for the best quarter for the sector during 2016. However, a sluggish start to the year meant growth over 2016 as a whole was still (on average) weaker than during 2015. All sub-indexes saw increasing growth with four of six rising at a faster rate.
Ten out of the 13 nations for which December data were available registered expansions in service sector activity. The steepest rates of increase were registered in Ireland, Russia and the UK, all of which saw growth accelerate since November. The upturns in the US, Spain and Germany also remained solid, although rates of expansion softened since the prior month. Elsewhere in Europe, growth picked up in France, but eased in Italy. A mixed picture was seen for the performances of the Asian service economies covered by the survey. Japan and China both saw output growth gather pace, to 11- and 17-month highs respectively. In contrast, the downturn in India and Hong Kong continued. Brazil also saw activity decline at the end of 2016.
Global service sector new business rose at the quickest pace for 13 months, a key factor underlying an improvement in business optimism to its second-highest level during 2016. This in turn led to the sharpest pace of job creation in almost a year, with staff added in the US, the Eurozone, China and the UK.
Price pressures intensified in the global service sector during December. Input cost inflation hit a near three-year high, leading to the sharpest increase in output charges since September 2014.
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.