GB: CIPS/PMI Services Index

Tue Sep 05 03:30:00 CDT 2017

Consensus Actual Previous
Level 53.5 53.2 53.8

Business activity in UK services was on the soft side of expectations in August. At 53.2, the sector PMI was still in line with continued expansion but at a reduced pace versus July and, in fact, at the slowest rate since September 2016.

New business posted a solid enough advance but, again, growth was well down on the average for the first half of the year. Heightened uncertainty about the UK economic outlook was a widely cited factor limiting client demand. Even so, headcount was up and at an accelerated rate for the third month running as it posted its strongest gain since the start of last year. Indeed, the sharpest rise in backlogs since July 2015 was testimony to a build-up in pressures on capacity and business confidence edged up to a 3-month high.

In the same vein, input costs were up steeply and more quickly than at any time in the last six months while output prices saw their largest increase since April. Worries about the latest bout of sterling weakness were quite commonplace.

Combined with mixed PMI news from manufacturing (up at 56.9) and construction (down at 51.1), today's services update puts August's overall composite output index at 53.8. This constitutes a 0.3 point decline versus July but still puts UK economic growth on course for around a 0.3 percent quarterly rate. This would match the second quarter outturn. Consequently, with the real economy quite sluggish, but inflation pressures apparently on the up again, there is something here for the BoE MPC's doves and hawks alike. Another split decision at next week's policy setting meeting looks very likely.

The Services Purchasing Managers' Index (PMI) provides an estimate of service sector business activity for the preceding month by using information obtained from a representative sector survey incorporating transport and communication, financial intermediation, business services, personal services, computing and IT and hotels and restaurants. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and Markit.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM non-manufacturing index in the U.S. and the Markit Services PMIs elsewhere, investors will know what the economic backdrop is for the various 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 Markit PMI services data give a detailed look at the services sector, how busy it is and where things are headed. The indexes are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.