Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 05 June 2017 at 5:09 GMT

3 Numbers: Slowdown expected for UK Services PMI

editor/analyst /
United States
  • Moderate growth is expected for the UK Services PMI in May
  • US Labor Market Conditions Index on track to dip to four-month low in May
  • Decent rate of expansion projected for US ISM Non-Manufacturing Index

By James Picerno

Today’s UK Services PMI release will be widely read as the last major economic release ahead of Thursday’s general election in Britain.

Later, two US numbers for May are in focus in the wake of Friday’s softer-than-expected increase in payrolls: the Federal Reserve’s broader read on employment via the Labor Market Conditions Index and the ISM Non-Manufacturing Index.

UK: Services PMI (0830 GMT) The rearview mirror suggests that the worst fears about Brexit fallout for Britain’s economy have been far off the mark.

But some analysts insist that the warnings are early rather than wrong. What’s more, the macro cracks are starting to look worrisome a year after the UK voted to leave the European Union (EU).

The Independent newspaper lists “Five signs that leaving the EU is starting to hurt the UK economy,” including rising inflation, falling real wages, and slower economic growth.

Macro cracks? There's little evidence Brexit has hurt Britain. Photo: Shutterstock

Last week, the Office for National Statistics trimmed its estimate of already soft first quarter GDP growth to 0.2%, mainly due to a slowdown in the services sector, which is responsible for roughly four-fifths of Britain’s economic activity.

Looking ahead, the macro trend is expected to remain sluggish, based on the 0.2% estimate for GDP growth in the three months through April, according to the National Institute of Economic and Social Research.

Will today’s survey data for the services sector in May offer a different narrative?

Perhaps, or so the consensus forecast implies. The Services PMI is expected to dip slightly to 55.0 from 55.8 in April, based on the crowd’s outlook via

That’s still well above the neutral 50 mark, and so the immediate outlook still looks relatively bright.

A bigger-than-expected downside surprise, however, would be hard to overlook in the wake of downgrades to GDP growth and near-term forecasts for output.

It’s still premature to assume the worst, but the margin of comfort is wearing thin for dismissing disappointing economic reports.
US: Labour Market Conditions Index (1400 GMT) Two reports on payrolls last week paint a mixed profile for employment growth in May. Will today’s big picture update via the Federal Reserve’s multi-factor labour index sort things out?

The government on Friday reported that US companies added 147,000 jobs last month, a smaller-than-expected rise that’s near the lower range of monthly changes in recent history.

But the ADP Employment Report for May, published a day earlier, reflected a much-stronger labour market last month: payrolls in the private sector increased 253,000.

It’s unclear at the moment which data set is closer to the truth, but perhaps today’s May release of the Fed’s Labor Market Conditions Index (LMCI) will provide some clarity.

Recent history, in fact, shows that momentum in payrolls has been picking up speed. But's consensus forecast sees LMCI falling to 2.6, a four-month low.

That's not terrible, but it's hardly a slam-dunk that wipes away all worries about the trend for payrolls in the second half of the year.

US: ISM Non-Manufacturing Index (1400 GMT) Economic forecasts continue to see a strong rebound for GDP growth in the second quarter.

Today’s first look at the ISM Non-Manufacturing Index for May will provide additional context for deciding if the case for optimism is still compelling for the big-picture outlook.

The Atlanta Fed’s GDPNow model is projecting that Q2 output will bounce back with a 3.2% increase – a solid turnaround from the sluggish 1.2% rise in Q1.

Wall Street analysts are also upbeat: CNBC’s Rapid Update survey for June 2 points to Q2 growth at 3.1%.

Today’s ISM release will offer new figures on the current state of expectations at the midway point for Q2.

The Non-Manufacturing Index tracks the services sector, the dominant driver of economic activity in the US. If the macro trend is accelerating, we may see some evidence in today’s data.

In fact, the consensus forecast via sees a slightly lighter reading for the ISM Non-Manufacturing Index in May: 57.0 vs. 57.5 in April.

But that still aligns with a healthy pace of expansion for services, although it’s debatable if it signals substantially stronger Q2 growth.

Meantime, the flash reading of the competing Services PMI for May ticked higher, touching a fourth-month high.

The big-picture via Markit’s Composite PMI - a proxy for GDP - firmed up a bit last month too.

“Growth of US business activity gained a little momentum for a second successive month in May, but the upturn still looks somewhat underwhelming,” said the chief business economist at IHS Markit.

Has the outlook turned brighter since those numbers were published on May 23?  If so, the evidence may show up in today’s ISM report and revised data for the Services PMI scheduled for 1345 GMT.
-- Edited by Adam Courtenay

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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