The Services PMI (Purchasing Managers’ Index) is a key economic indicator showing the health of the services sector, covering areas like finance, retail, healthcare, and hospitality. If the PMI is above 50, it signals growth in the sector, while a PMI below 50 indicates a slowdown.
There are two main organizations that publish these reports:
- S&P Global: Their Services PMI surveys a broad range of service sector companies both in the U.S. and internationally. It’s known for its comprehensive sample size and advanced methodology, giving early and detailed insights into business conditions.
- Institute for Supply Management (ISM): The ISM’s Non-Manufacturing PMI includes data from purchasing and supply executives across various industries, including construction, utilities, and government administration. With a long history, this survey focuses more on larger companies.
Both indices are watched closely by economists and investors as they provide valuable information about the performance and trends in the services sector.
A PMI above 50% indicates expansion in the services sector, while a reading below 50% indicates contraction.
November S&P Global Services PMI
In November, the US service sector showed strong growth momentum, with business activity and new orders rising significantly. The seasonally adjusted Business Activity Index reached 56.1, up from 55.0, marking the fastest expansion since March 2022. This growth was driven by a substantial increase in new business, particularly after the Presidential Election and lower interest rates encouraged customer orders.
Despite the growth, companies were cautious about hiring and actually reduced employment slightly, leading to a build-up of outstanding business. Input costs continued to rise due to higher staff and transportation expenses, but the rate of inflation eased, with output prices increasing at the slowest pace in four years. Companies remained optimistic about future business activity, expecting the incoming administration to improve the business environment, although confidence dipped slightly from October.
Source: spglobal
S&P Global US Composite PMI
The Composite PMI Output Index rose to 54.9, a 31-month high, indicating a marked increase in overall business activity. This growth was largely driven by the services sector, while manufacturing output saw a decline. Despite the challenges in manufacturing, new orders grew to a two year high, and output prices increased at the slowest pace.
November ISM Services PMI
November was a solid month for the US services sector, which continued to show growth, marking its fifth consecutive month of expansion. The Services PMI came in at 52.1, slightly down from October’s 56, but still indicating growth.
Source: ism
Key Highlights of The Report
- Business Activity and New Orders: Both indexes stood at 53.7, showing slower growth compared to October but still moving in the right direction.
- Employment: Employment in the sector grew modestly, with the index at 51.5%, down from 53 in October.
- Supplier Deliveries: The index fell to 49.5, indicating faster delivery times.
- Prices: Prices rose slightly to 58.2, continuing a long trend of price increases.
- New Export Orders: Dropped to 49.6, marking the first decline in seven months.
- Imports: Expanded for the fifth month in a row, reaching 53.8.
Industry Highlights:
- Growth Areas: Fourteen industries, including Accommodation & Food Services, Finance & Insurance, Healthcare, and Retail Trade, reported growth.
- Challenges: Real Estate, Rental & Leasing, and Mining were among the few that saw declines.
Despite some slowing down, the services sector is still on a growth path. Companies are seeing steady business activity and new orders, although they are a bit cautious about hiring and managing costs.
Impacts of Report on Stock Market
Weaker than expected PMI readings can lead to market volatility, as traders react to signs of an economic slowdown. However, this report also helps us identify strong-performing sectors, guiding more informed trading decisions, while keeping an eye on weaker sectors. Additionally, central banks and policymakers often use these reports to make decisions on interest rates and other economic policies, which can significantly impact stock market performance. We should keep an eye on upcoming reports to judge the services performance and their major impacts on the stock market.
