Markit Economics' service-sector sample reports strong activity, at a January index of 55.6 vs 55.1 in the mid-month flash and against 53.9 in December. The report describes new orders as "robust" and confidence in the outlook as the best since May last year. The rise in new orders is giving a lift to backlogs which are up for a 5th time in the last 6 months. Rising backlogs are positive for employment which is steady near December's 15-month peak. Input costs are on the rise, due to energy prices and also higher wages, though selling prices are up only marginally. This report is an echo of this morning's jobs report, one that points to strength and optimism.
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.