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A look at the US Services sector

A look at the US Services sector

Today we’ll get the latest update for the US ISM Non-Manufacturing PMI – in short, a snapshot of the US Services sector. Why should traders be interested in this? Firstly, the Services sector generally accounts for around 67% of US gross domestic product. Secondly, it has been particularly badly hit by the coronavirus lockdown. Consider the damage done to the hospitality and travel sectors. Just as importantly, the PMI (purchasing managers’ index) is, unlike most data releases, a leading indicator of economic health. It is a survey of about 300 purchasing managers which asks respondents to rate the relative level of business conditions as they experience them, including the outlook for employment, production, new orders, prices, supplier deliveries, and inventories. Businesses have to react quickly to market conditions, and their purchasing managers are in the position of having the most up-to-date and relevant insight into the company's view of the economy.

In normal times, the Manufacturing and Non-Manufacturing surveys are, along with non-Farm Payrolls, considered the most significant of all the monthly US data releases. But the question now is whether that remains the case as analysts struggle to make sense of these numbers following the coronavirus-related slump? The answer is probably that the data is still far too noisy and volatile to have the same impact on trader behaviour as it did before the pandemic.

But that’s not to say it has no effect. Last Thursday global equity markets initially soared after US Non-Farm Payrolls came in well above expectations for the second month in a row. Surprises still matter, whether they are good or bad.

As we can see in the chart below from, the Services side of the US economy contracted sharply in April and May, back to levels last seen at the end of the Great Financial Crisis over ten years ago.

The consensus forecast is that the June number will bounce to 48.9 from 45.4. This would still represent contraction, although the recent trend is positive.

So, what is the chatter like on social media? Once again, we’ve analysed the data behind our Smart News widget which can be found on the trading platform. Perhaps unsurprisingly, there have been few comments concerning this economic release. A look at the ‘Daily Hype’ chart shows how social media interest dropped off sharply last month (circled) despite a flood of interest in discussing the previous month’s release. The ‘Hype per Event’ chart shows how social media mentions around the Non-Manufacturing PMI have trended down since their localised peak in October last year. Again, it could be that investors are finding the data too noisy and volatile to put much faith in it as a good indicator.

Meanwhile, looking at the data from Smart News itself showed that discussions on the financial side of social media are focussed on Covid-19. This is consistent with the pick-up in cases being seen in the US. Meanwhile, Amazon and Tesla are the two most talked-about stocks. Both hit fresh all-time highs going into the Independence Day holiday. Amazon came within 2% of topping $3,000 per share which means the stock price has nearly doubled in just over three months. Tesla has more than tripled over the same period.

So as things stand, the US Services data is being buried under more exciting headline stories. So why not set up some channels and watchlists on Smart News and follow the big stories on social media?  You can find the widget in the bottom corner of our trading platform. To get the best out of Smart News, make sure you check out our set of tutorials on the Trade Nation YouTube channel.




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