DE: PMI Composite FLASH

Fri Jan 23 02:30:00 CST 2015

Consensus Actual Previous
Manufacturing - Level 51.7 51.0 51.2
Services - Level 52.5 52.7 51.4
Composite - Level 52.6 51.4

German economic activity looks to have picked up a little steam this month. Although manufacturing growth apparently eased slightly, a stronger services sector was enough to see the flash composite output index rise 0.6 points versus its final December reading to a 3-month high of 52.6.

The manufacturing PMI was provisionally put at 51.0, a couple of ticks below its final year-end level and indicative of a subdued rate of expansion. However, the comparable service sector measure gained 0.6 points to 52.7.

The manufacturing output index (52.3) advanced 0.5 points and growth of aggregate new orders moved back into positive territory after consecutive declines in November and December. That said, export markets remained weak, notably Russia and Asia, and both sectors reported a drop in backlogs. Even so, private sector employment was up for a fifteenth consecutive month and business sentiment in services improved sharply, albeit after a slump to a near 2-year low in October.

Meantime, deflationary pressures became more of an issue. Total input costs fell at the sharpest rate in more than five years and, more importantly, output prices were reduced at the steepest pace since February 2010.

Without the weak inflation component, today's report could be seen as moderately bullish on German economic prospects. However, as it is the accelerating decline in prices described here simply underlines the importance of yesterday's ECB moves and, if anything, will boost worries that they might have come too late.

The Germany PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of 1000 companies based in the German manufacturing and service sectors. The flash estimate is based on around 85 percent of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.