Source: Markit Economics

Global PMI (Purchasing Mangers' Index) data in January, indicated that the recovery in the worldwide service sector continued at the start of 2010. At 51.2, down from 51.8 in December, the JPMorgan Global Services Business Activity Index signalled an increase in activity for the sixth successive month. However, the rate of expansion was slower than the previous month and well below that signalled for manufacturing output.

The strongest gains in activity were recorded in Hong Kong, India (fastest rate for 16 months), China and France. The US and the UK saw modest growth in activity, but at slower rates than in the previous month. The Eurozone saw activity rise at the weakest pace in four months. Disparities between the performances of the Eurozone national economies continued, with growth in the big-3 contrasting with the contractions seen in Spain and Ireland. Japan remained the main laggard, however, with activity falling at a faster pace than in the other nations covered by the survey.

Underpinning the latest expansion in business activity was a further increase in the level of new work received. New business rose for the fifth consecutive month. The rate of expansion was only moderate but still the fastest during this period. Amongst the major nations covered by the survey, growth of new orders hit a 27-month high in the US, steadied at an elevated level in China and moderated in the Eurozone and the UK. Japan saw a further marked decrease in new work received.

January data indicated that spare capacity remained in the global service economy. This was highlighted by a further reduction in outstanding business. Backlogs of work have now declined in each of the past 29 months. The sharpest reductions were recorded in Ireland and Japan. Work-in-hand fell in the US (fastest rate for five months), the Eurozone (all countries except France), the UK, Russia (quickest drop since July 2009) and Brazil. In contrast, backlogs of work rose in China, France and India.

Further job losses were reported in January, meaning that employment has now fallen for 21 consecutive months. Although the rate of reduction in staffing levels remained solid, it was the slowest since September 2008. The sharpest job losses were recorded in Ireland (albeit the weakest cut for one-and-a-half years), Spain, the US (weakest fall since August 2008) and Australia. Of the other countries to report a decline in employment, only Japan and Russia reported a faster rate of reduction. China, India, Hong Kong and Brazil all reported increases in employment.

Cost inflation accelerated for the fourth month running in January to reach its highest level since September 2008. Almost all of the national service sectors covered by the survey reported an increase, the exceptions being Japan, Spain and Ireland. Cost inflation was highest in Australia and the US (five-month high), and accelerated in the Eurozone (despite staying modest), the UK, India and Brazil.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "January PMI data signal that although the recovery in the service sector continued, it remained moderate compared to that being seen in manufacturing. This was further highlighted by an easing in the rate of growth in services activity at the start of 2010. It is still hoped that the expansion will be sustained in the coming months, as new orders continued to rise."

The Global Report on Services is based on the results of surveys covering around 3,500 executives carried out in the USA by ISM, andin Japan, China, the UK, Germany, France, Spain, Italy, Brazil, India, Russia, Ireland and Hong Kong by Markit, in Australia by AiG, New Zealand by Business NZ and Mexico by HSBC.

Services account for an estimated 63% of world GDP (gross domestic product).