GB: CIPS/PMI Services Index

Tue Dec 05 03:30:00 CST 2017

Consensus Actual Previous
Level 55.0 53.8 55.6

UK services underperformed market expectations last month. At 53.8, the sector PMI was comfortably short of October's 6-month high (55.6) and below its average reading over 2017 to date. However, it was still easily on the right side of the 50 growth threshold.

The rate of new business expansion slowed and employment recorded its smallest increase since March. However, backlogs rose for the third time in the last four months and further signs of increasing pressure on capacity was provided in anecdotal reports of recruitment difficulties in some areas. Service providers' optimism regarding the year ahead picked up slightly, but remained weaker than the levels seen over most of the first half of 2017

Meantime, input costs rose at an accelerated and marked pace. More expensive energy, food, fuel and imported items together with higher staff salaries were to blame. This prompted the fastest rise in output prices since February 2008 and the rate of charge inflation was the second-fastest on record.

Combined with the surprisingly robust readings already published for both manufacturing (58.2) and construction (53.1), today's service sector results put the composite output index at 54.7. This still suggests a moderatelydecent November but also implies a clear deceleration from October (55.3). Brexit uncertainty continues to take its toll but it is far from all bad. On current PMI trends, fourth quarter GDP growth could still come in around the 0.4 percent mark which, if so, would match its third quarter outturn.

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.