Monday, January 10, 2011

Global Services PMI at 41-Month High! (Chart) "Important momentum & balance to global recovery"


Global Services PMI by JPMorgan

Global Services PMI Up +2.5% in December

Official Statement by JPMorgan Growth of business activity and new work in the global service sector accelerated sharply at the end of 2010. At 57.3 in December, up from 54.6 in November, the  JPMorgan Global Services Business Activity Index signalled the fastest rate of expansion since July 2007. The headline index has remained above the 50.0 no-change mark in each of the past 17 months.
* The acceleration at the global level was led by the US nonmanufacturing sector, as growth of business activity in the US picked up sharply to the fastest pace since August 2005.
* Business activity rose in China and India. Japan also saw output rise for the first time in eight months. The Eurozone reported an expansion of services activity for the sixteenth month running in December, although the rate of increase eased slightly over the month. Germany remained the stellar performer within the currency union, with output rising at the same robust pace as November's 39-month peak. France also saw marked growth, but the rate of increase was much slower than earlier in the year.
* Elsewhere in Western Europe, conditions were generally less solid. The recovery in Italy slowed sharply to near-stagnation, Ireland fell back into contraction and Spain saw activity fall for the fifth month in a row. UK service sector activity, meanwhile, declined for the first time since April 2009 – mainly reflecting poor weather conditions.
* David Hensley, Director of Global Economics Coordination at JPMorgan, said: ""Global services experienced a similar acceleration to its manufacturing counterpart at the end of 2010. Business activity rose at the fastest pace since July 2007, supported by a significant improvement in new business inflows. This provides important momentum and balance to the global recovery. The services job market remains muted overall, but will hopefully pick up as the upturn continues."

Cycle History The data on the chart below is limited to the latest 17 months ending December 2010. The current Global Services PMI of 54.8 is now at a post-Great Recession cyclical peak of 57.3. The current PMI is up +7.0 and +14% from the intermediate-term bottom of 50.3 in November 2009. Therefore, the current Global Services PMI is now at a cyclical peak. The PMI is a percentage - not a total. More about the PMI below the chart.

Trend The current Global Services PMI of 57.3 has remained above the 12-month moving average of 54.6, which is ascending sharply, for 3 consecutive months. Since the peak in April 2010, there had been 5 consecutive months (May through September) of declines before the 3 consecutive increases (October through December) and the bounce off the September 2010 bottom. However, any value over 50 indicates expansion so the growth was continuing, just at a slower pace.

Global Services PMI (Chart) Below is a chart of the latest 17 months of the Global Services PMI from August 2009 through the latest month reported, December 2010. The PMI has been greater than 50, indicating global services are expanding, since August 2009, for 17 consecutive months. The PMI peaked in April 2010 at 56.8. Five consecutive monthly declines ensued through September 2010 before the current 2 consecutive monthly increases. However, the 5 consecutive monthly declines still indicated global services was expanding, just at a slowing rate.

Commentary This another month of positive data, a +2.5% surge upwards in December, after a +0.2% increase in November, after a strong +2.3% increase in October. This was  after 5 consecutive monthly declines. The related USA ISM Non-Manufacturing Index (NMI) also increased in December a strong +2.1% and is reviewed here. The related JP Morgan Global Manufacturing PMI increased +1.1% in December and is reviewed hereOverall, these USA and global economic indicators are now reporting an acceleration of the economic recovery in December.

About The PMI The Global Report on Services is based on the results of surveys covering around 3,500 executives carried out in the USA by ISM, and in Japan, China, the UK, Germany, France, Spain, Italy, Brazil, India, Russia, Ireland and Hong Kong by Markit, in Australia by AiG, New Zealand by Business NZ and Mexico by HSBC. These countries together account for an estimated 80% of global service sector output. For the US, data are taken from the ISM non-manufacturing survey which, in addition to the service sector included in the other countries, also includes agriculture, construction, mining, public administration, retail, utilities and wholesale sectors. The Hong Kong PMI also covers construction, manufacturing and retail. Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. 50.0 = no change level.

Data sources: Country % share of global GDP
United States 28.8
EuroZone 17.7
Japan 12.8
China 6.5
Germany 5.2
United Kingdom 4.3
France 3.8
Italy 2.9
Brazil 2.1
India 2.0
Spain 1.8
Australia 1.3
Russia 1.1
Hong Kong 0.6
Ireland 0.3
New Zealand 0.2

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*Data courtesy of the Institute for Supply Management & JPMorgan*

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