EMU: PMI Manufacturing Index

Fri Jan 02 03:00:00 CST 2015

Consensus Actual Previous
Level 50.8 50.6 50.1

Eurozone manufacturing activity was a little weaker than originally thought in December. At 50.6, the final PMI was 0.2 points short of its flash estimate but still 0.5 points above its final November outturn and, crucially, above the 50 growth threshold.

Production saw its slowest growth during the current one-and-a-half year period of sustained expansion but at least new orders managed a small rise for the first time in four months. That said, much of the increase in demand appeared to be the result of stronger overseas buying and export orders posted a 3-month high. Overall employment was up for a fourth successive month although the national picture remained very mixed. Crucially for the ECB, inflation developments were very weak. Hence, input costs recorded their steepest drop in eight months and factory gate prices registered a fourth consecutive decrease, albeit by less than in mid-quarter.

Regionally, Ireland (56.9) was comfortably the best performer ahead of Spain (53.8) and the Netherlands (53.5). Germany (51.2) returned to (sluggish) growth but the other countries all saw declines in activity, notably in France (47.5) but also in Italy (48.4).

The average PMI for the fourth quarter was a lowly 50.4 and if reflected in the official data would suggest that the sector saw its worst performance since the recovery started in the third quarter of 2013. Accordingly, Eurozone manufacturing saw out 2014 on a worryingly weak note and only a very modest increase in orders hardly bodes well for early 2015. With deflation risks higher than ever, financial markets will continue to anticipate more ECB easing before the current quarter is out.

Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.

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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.