Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

U.S. SERVICES PMIs REMAIN BUOYANT

U.S. service providers indicated another strong rise in business activity and incoming new work during May, but both rates of expansion eased since the previous month. Nonetheless, survey respondents remain highly upbeat about their prospects for growth over the next 12 months, with the degree of business optimism rising to its strongest since November 2014. This in turn contributed to a robust and accelerated increase in service sector payroll numbers in May.

At 56.2 in May, the seasonally adjusted Markit U.S. Services Business Activity Index posted above the neutral 50.0 value for the nineteenth consecutive month. However, the latest reading was down from 57.4 in April and pointed to the slowest pace of expansion since the opening month of 2015. Mirroring the trend for business activity, service providers signalled the least marked upturn in new work for four months in May.

image

The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) registered 56.0 in May, down from 57.0 in April but above the neutral 50.0 threshold for the nineteenth consecutive month. The latest reading indicated the slowest pace of output expansion since January.

image

Service providers attributed higher levels of business activity to gradually improving economic conditions and rising client demand in May. That said, the latest survey suggested a lack of pressure on operating capacity, following the recent slowdown in new business growth. Volumes of work outstanding increased only marginally, with the rate of backlog accumulation the weakest since July 2014.

In contrast to the trends seen for business activity and new work, the latest survey highlighted an accelerated pace of service sector job hiring in May. Employment growth has now picked up for five consecutive months to the highest since June 2014. Anecdotal evidence attributed extra staff recruitment to new project wins, ongoing investment plans and confidence regarding the business outlook. Service providers’ expectations for the year ahead picked up further from March’s eight-month low in May, with survey respondents generally citing hopes that economic conditions will improve in the months ahead.

Meanwhile, service sector input price inflation was little-changed from the six-month high recorded in April. Companies that reported a rise in their average costs mostly attributed this to rising fuel prices. Despite a solid increase in cost burdens, prices charged by service providers rose only marginally in May, and at the slowest pace since January.

From the Institute for Supply Management: May 2015 Non-Manufacturing ISM Report On Business® (via CalculatedRisk)

The NMI® registered 55.7 percent in May, 2.1 percentage points lower than the April reading of 57.8 percent. This represents continued growth in the non-manufacturing sector although at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.5 percent, which is 2.1 percentage points lower than the April reading of 61.6 percent, reflecting growth for the 70th consecutive month at a slower rate. The New Orders Index registered 57.9 percent, 1.3 percentage points lower than the reading of 59.2 percent registered in April.

The Employment Index decreased 1.4 percentage points to 55.3 percent from the April reading of 56.7 percent and indicates growth for the 15th consecutive month. The Prices Index increased 5.8 percentage points from the April reading of 50.1 percent to 55.9 percent, indicating prices increased in May for the third consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in May. Overall there has been a slight slowing in the rate of growth for the non-manufacturing sector. Respondents’ comments are mostly positive about business conditions and indicate economic growth will continue.

EUROZONE SERVICES PMI DOWN 0.3 TO 53.8

The eurozone private sector economy lost growth momentum in May, with rates of expansion in both output and new business slowing to three-month lows. The trend in employment fared better, with headcounts rising at the fastest pace in four years. There was also positive news on the prices front for a region many consider being under threat from possible deflation, as input costs rose at the strongest pace since April 2012 and the rate of selling price reductions slowed further.

The final Markit Eurozone PMI® Composite Output Index posted 53.6 in May, down from 53.9 in April, but above the earlier flash estimate of 53.4. The upward revision between flash and final readings mainly reflected stronger than previously estimated output growth in France. Output rose in both the eurozone manufacturing and service sectors during May, with rates of expansion slowing in both cases. Business activity growth at service providers remained a shade ahead of that signalled for manufacturing production.

image

Among the ‘big-four’ economies, Spain remained well ahead of the chasing pack despite seeing a slight deceleration in its pace of expansion. Italy and Germany also saw softer rates of growth for output and new orders than in the prior month. France achieved some catch-up on the growth front. Its rate of expansion in economic activity accelerated to a three-month high, underpinned by the fastest inflows of new business since August 2011.

Employment rose for the seventh consecutive month in May, with the pace of jobs growth hitting a four-year record. Rates of increase in payroll numbers accelerated in Germany (two-month high), France (41-month high) and Spain (94-month high), and also remained solid in Italy despite easing slightly. Higher employment was a key factor underlying a stabilisation in the level of outstanding business following increases in each of the prior three months.

Associated increases in staff costs also contributed – alongside rising import costs due to the euro’s depreciation and higher oil prices – to the steepest
increase in average input costs since April 2012. Although average output charges continued to fall in May, the rate of decrease was only marginal and the
joint-weakest during the current 38-month sequence of reduction. Only Germany reported an increase in average selling prices, the sharpest since January 2014. Output charges held steady in Spain, but fell in France and Italy.

Eurozone service sector business activity rose at the slowest pace in three months during May, as growth of new orders moderated and business optimism† slipped to a five-month low. At 53.8 in May, from 54.1 in April, the Eurozone Services Business Activity Index signalled an expansion of output for the twenty-second successive month.

Spain was the stand-out performer of the nations for which data were available, recording by far the steepest increases in both output and new orders. Business activity growth was evenly distributed between Germany, France and Italy, with rates of expansion broadly similar in each case. However, France was the only country among the ‘big-four’ to report a stronger increase in either output or new orders (registering faster expansions in both).

Eurozone service sector employment rose for the seventh month running in May, with the pace of job creation hitting a four-and-a-half year high. Increased staffing levels aided efforts to clear outstanding business, leading to the first decline in backlogs of work during the year-to-date.

Accelerated growth of employment was registered in Germany, France and Spain. Although job creation slowed in Italy, employment nonetheless rose for the fourth straight month.

May’s survey highlighted an acceleration in cost inflation, with input prices rising at the strongest pace since December 2012. Some service providers noted higher staff costs and a recent increase in oil prices. In contrast, average service charges fell for the forty-second consecutive month in May. However, the decline was the smallest recorded since March 2012. Of the nations for which data were available, only Germany reported an increase in average selling prices.

image