Services PMI (Or Non-Manufacturing PMI)

Economics and Currency

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Curriculum Content

Leading/Coincident/Lagging: Leading Economic Indicator
Type: Survey, Index (Above/Below Index Number)

Note: If the Nation is Services dominant, the Services PMI is a stronger representation of the economy. If the nation is Manufacturing-dependent, the Manufacturing PMI is a stronger representation.

Summary: Services PMI and Non-Manufacturing reports are sent to the larger services providers in the nation every month. It scores Services providers’ outlooks on the business situation, with the same 8 to 18-month lead time on GDP. Services PMI reports cover the same areas as the Manufacturing PMI, with small changes to category names. Business Activity replaces Production. Above 50 means the services or non-manufacturing sector within the nation is expanding. A Services PMI reading below 50 means the services sector is contracting. Below 50 or 40, depending on the reporter, means the general economy is contracting.

The business cycle is fully represented in the range of Services PMI numbers. The existing trend is the most important consideration, followed by peaks and troughs. If the number peaks at a higher range number and trends down you should expect slowing in GDP and deflation, especially near 60. If the number bottoms at a lower number and trends upward, you should expect accelerating GDP and inflation, especially near 40. Limits are due to central banks controlling against overheating or failing economies.

Services PMI (SPMI)	Change Versus Previous
SPMI over > 50, RGDP Rises.	SPMI rise accelerates, GDP rises quicker.
SPMI under < 50, RGDP Falls.	SPMI rise slows, GDP rises slower.
SPMI over > 50, Inflation Rises.	SPMI accelerates, Inflation rises quicker.
SPMI under < 50, Inflation Falls.	SPMI slows, Inflation rises slower.
If SPMI is too High, Central Bank likely to…	Hyperinflation Risks, so raise Interest Rate.
If SPMI is too Low, Central Bank likely to…	Deflation Risks, so lower Interest Rate.
All information is general, not absolute. Invest using total economy, not one indicator.
RGDP = Real GDP

Impact on Local Currency: Currency values increase with PMIs above expectations or 50. Foreigners are scared by below expectation PMI releases or below 50 and may reduce currency exposure.