It’s S&P Global’s release of their Purchasing Managers’ Indices (PMIs) that has the markets buzzing. Analysts are expecting it to reflect continued strength of the U.S. economy and an overall positive move in the economic environment. The July PMIs, scheduled for release on Thursday, are expected to reflect growth in both manufacturing and services sectors, building on previous months’ data.
S&P Global PMIs—particularly the composite index—are widely regarded as invaluable monthly indicators. They provide the best source of information on production levels, export patterns, capacity utilization, employment trends, and inventory states. These indices are released earlier than many official economic statistics, allowing investors and policymakers to gauge the health of the economy proactively.
In June, the Composite PMI suffered a marginal decrease, ticking down to 52.9 from 53.0 in May. Analysts concede that this is a small drop, but they’re nonetheless buoyed by what they’re seeing in July. They think the U.S. economy has slowed down in the month.
Anticipated Improvements in PMIs
We’ll get the flash PMIs for July, which should confirm an uptick in the Manufacturing PMI and continued strength in the Services PMI as well. The headline Manufacturing PMI is expected to see an increase from 52.0 to 52.5. At the same time, they predict an increase in the Services PMI from 52.9 to 53.0. Since they each have one overall number, each PMI is based on a diffusion index, where values above 50 reflect growth and values below 50 reflect contraction.
As Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, put it so well – these indices are vital. He stated, “The US service sector reported a welcome combination of sustained growth and increased hiring in June but reported elevated price pressures, all of which could add to pressure on policymakers to remain cautious with regard to any further loosening of monetary policy.”
These upticks in PMIs are certainly of critical importance. As such, they provide the first indication of turning points in broader economic measures, including Gross Domestic Product (GDP), industrial production and employment. Methodology surveys provide data that reflects the movement of business activity month over month. Even more important, this information can actually predict the direction of future economic reports before they come out.
The Role of Services PMI
The S&P Global Services PMI is especially important because it is the most timely and accurate measure of business conditions in the U.S. expressed services sector. A number greater than 50 means that the services economy is growing. This sustained growth is usually considered to be bullish for the U.S. Dollar (USD). When the reading goes below this threshold, it indicates that service providers are experiencing a decrease in activity. This of course would be a huge bearish development for the USD.
Businesses are working hard to adjust to today’s economic realities. The Services PMI would provide a glimpse into just how well they’ve been doing and the possible growth paths ahead. Investors pay close attention to this index because of what it says about potential monetary policy and overall economic health.
Implications for Investors and Policymakers
The S&P Global PMIs were widely released this week, and their impact extends beyond our economic well-being. It literally informs investor sentiment and moves the market. Manufacturing PMI and Services PMI So, good news on both fronts. This is a very encouraging development that can help lift investor confidence and catalyze greater market participation.
Moreover, these indicators are critical for any policymakers who might wish to change monetary policy through the business cycle. According to market analyst Piovano, the pair’s bullish stance will be under threat as long as the price holds above the 200-day SMA at 1.0910. He addressed how closely economic indicators drive currency values and informed trading strategies.