| Actual | Previous | |
| Composite Index | 49.9 | 49.1 |
| Services Index | 49.6 | 48.4 |
Highlights
Midway through the first quarter, the private sector economy remains in contraction, with the February composite PMI reading of 49.9 below the expansionary mark of 50.1. Nevertheless, the result is above January's 49.1, according to final figures.
The services component rose to 49.6 in February from 48.4 in January, having now been in contraction for the last three months. Once again, firms are reporting contracting new order intake, forcing them to work through backlogs in order to keep activity running. Orders from abroad were particularly weak.
Despite the contraction in orders firms are adding staff, with employment expanding for the second month in a row. Hiring came in both temporary and full-time employment. While this seems paradoxical given stubbornly weak order intake, firms are optimistic that business will pick up over the course of the next twelve months and hiring accordingly.
The composite index which also takes into account the manufacturing sector, also reported dwindling new orders, with demand weakening over the past three months.
Weakening orders have been a thorn in the side of the private sector, and they will have to start picking up in order for the optimism to be justified. While working through backlogs helps keeping activity going, at some point there will have to be an increase in new business.
Definition
The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by S&P Global.
Description
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 purchasing managers' manufacturing indexes, 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.