GB: CIPS/PMI Services Index

Tue Jun 05 03:30:00 CDT 2018

Consensus Actual Previous
Level 53.0 54.0 52.8

UK services saw business activity pick up in May. At 54.0, the sector PMI was 1.2 points above its unrevised April outturn, stronger than expected and at its highest level in three months.

Even so, growth of new business was amongst the weakest seen in almost two years as soft consumer spending and ongoing Brexit worries took their toll. As a result, headcount was up only marginally, although the gain here was also depressed by shortages of skilled staff in some areas. Business confidence deteriorated for the third time in the last four months.

Meantime, rising costs were boosted by higher wages and salaries as well as more expensive fuel. However, promotional discounting ensured that the rate of output price inflation still eased for a second month in a row and to its lowest level since last June.

Taken together with the PMIs for manufacturing (54.4) and construction (52.5) already released, today's service sector report points to quarterly growth of real GDP around 0.3-0.4 percent. This would be up from the meagre 0.1 percent first quarter post and should be enough to keep alive the chances of a BoE tightening in August. That said, the upswing looks quite fragile and part of May's recovery appears to have been simply due to a rebound from the bad weather of late March and early April. Unless inflation starts to move up again, Bank Rate could still be 0.5 percent at year-end.

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.