GB: CIPS/PMI Services Index

Thu Jan 04 03:30:00 CST 2018

Consensus Actual Previous
Level 54.1 54.2 53.8

Services marginally outperformed expectations in December. At 54.2, the sector PMI was up 0.4 points versus its November reading to signal the second strongest rise in business activity since last April.

New business increased at a solid pace although it was still the slowest since August 2016. The deceleration contributed towards a fall in backlogs and, while only marginal, this decline was the joint largest since February 2017. Job creation remained positive but also slipped to a 9-month low. That said, some firms reported difficulties in finding suitable staff due to the tightness of the labour market. Indeed, business optimism actually climbed to a 7-month high.

Meantime, inflation pressures were again strong. The input cost rate posted its highest outturn since last September while a fall in the output price rate masked another sizeable monthly increase in charges.

Taken together with respectable readings on the PMIs for manufacturing (56.3) and, to a lesser extent, construction, (52.2) today's service sector outturn points to moderate growth of real GDP at year-end. The fourth quarter should see a quarterly rate of 0.4-0.5 percent. However, the outlook is very clouded by Brexit uncertainty and future developments here could well make for a very rocky ride in 2018.

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.