GB: CIPS/PMI Services Index

Mon Feb 05 03:30:00 CST 2018

Consensus Actual Previous
Level 54.2 53.0 54.2

UK services slowed appreciably in January. The sector PMI dropped 1.2 points versus its unrevised December reading to 53.0, well below market expectations and its weakest mark since September 2016.

However, it was far from all bad news as growth of new business was actually a little higher than at year-end, albeit still short of the 2017 average. Brexit uncertainty was once again cited as a key factor. Employment was also up again and a slight acceleration here was enough to secure a 4-month high. Backlogs similarly increased and even business confidence was the strongest since March last year.

Meantime, inflation news was somewhat softer. Hence, input costs saw their smallest increase since September 2016 and output price inflation eased to a 4-month low.

The January results are somewhat contradictory as the headline decline seems at odds with rising business optimism, new orders and employment. Still as they stand, the latest three PMI surveys points to some loss of economic momentum this quarter and growth could be on course for a just a 0.3 percent quarterly rate. If so, and combined with some softening in pipeline inflation, immediate pressure on the BoE to tighten again should ease a little.

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.