S&P Global Services PMI Flash

What is S&P Global Services PMI Flash?

The S&P Global Services PMI Flash (Purchasing Managers' Index, a monthly business survey) is compiled by S&P Global for Australia. It covers around 400 private services firms, stratified (divided into representative groups) by GDP (total economic output) contribution and workforce size. Covered services span consumer excluding retail, transport, information, communication, finance, insurance, real estate and business services.

The headline, the Services Business Activity Index, tracks the direction of activity only. It does not measure the level of activity, turnover or GDP, and covers neither manufacturing nor official statistics or forecasts.

When is it released and what happens each release?

Responses are collected in the 2nd half of each month, with the flash cut-off about 1 week before month-end on about 80-90% of replies. It is published during the reference month, around the 3rd or 4th week, at about 09:00 Sydney time. Each flash brings manufacturing PMI (a factory survey headline), manufacturing output, composite output (a combined private-sector gauge) and services sub-indices with commentary. S&P Global never revises raw answers, though seasonal factors (calendar-pattern smoothing) can change, and full-month finals supersede the flash.

What moves S&P Global Services PMI Flash?

Services activity follows demand, foreign orders, staffing, costs and fees, all read against 50.0.

• Business activity: single headline question on activity volume versus 1 month ago.
• New business: order-book (incoming orders) and sales volumes from clients.
• New export business: orders from abroad, which can fall while domestic demand grows.

• Outstanding business and employment: backlogs (uncompleted work) and staffing levels, which can rise to clear backlogs as growth slows.
• Input prices and prices charged: average cost burdens such as wages and fuel, versus fees charged to clients.
• Future activity: the year-ahead business outlook, an expectation rather than actual activity.

In July 2020 the Services Business Activity Index reached 58.2, up from 53.1 in June, its highest since April 2017, as businesses reopened after lockdowns. New business rose at a pace not seen for 3 years. New export business stayed below 50.0 for a 6th straight month amid border restrictions.

Fees charged stayed below 50.0 to stimulate sales while input costs stayed above 50.0, a clear margin squeeze (profit pressure when costs outpace fees). The lesson is to read every index against 50.0, not just the headline.

How is S&P Global Services PMI Flash calculated?

1. Direction of change: each firm reports whether the variable (each surveyed measure) is higher, unchanged or lower than 1 month ago.

1. Diffusion index: the index equals the percent higher plus half the percent unchanged, or I = H + 0.5*U, on a 0-100 scale. For example, 30% higher, 50% unchanged and 20% lower gives 30 + 0.5*50 = 55.0 after seasonal adjustment, or 5 points above neutral.

1. Seasonal adjustment: indices are seasonally adjusted, meaning calendar-pattern effects are smoothed, and only these factors may later change.

1. Services headline and flash: the headline is the single-question Business Activity diffusion index with no weights. By contrast, the Manufacturing PMI weights New Orders 30%, Output 25%, Employment 20%, Suppliers' Delivery Times 15% and Stocks of Purchases 10%. It is first computed on about 80-90% of replies as the flash, then recomputed on all replies as the final.

Key point: The Services PMI is not a weighted composite (a mix of components) like Manufacturing PMI; it is 1 diffusion index from 1 question. The flash is not final; it rests on about 80-90% of replies and the full-sample final supersedes it. The mean revision is 0.1 and the mean absolute revision is 0.4 on the services headline.