EMU: PMI Composite FLASH

Fri Jan 23 03:00:00 CST 2015

Consensus Actual Previous
Manufacturing - Level 51.0 51.0 50.8
Services - Level 52.0 52.3 51.9
Composite - Level 52.2 52.6 51.7

The Eurozone economy picked up some much needed momentum this month. At 52.2, the flash composite output index was up 0.8 points versus its final year-end reading and at its highest level in five months. The results were on the firm side of market expectations.

The headline improvement reflected gains in both the manufacturing and service sectors. For the former, the PMI was provisionally put at 51.0, up 0.4 points from December's final print and its strongest mark in half a year. Services weighed in at 52.3 after a 51.6 outturn last time.

Manufacturing output (52.2 after 50.9) grew at an accelerated, if still relatively modest, pace and aggregate new orders rose at their sharpest rate in five months. Private sector backlogs fell again, but only marginally, and employment showed its largest gain since July 2014. That said, the rate of job creation remained muted.

However, despite the slightly more reassuring signs from the real economy, price developments were worryingly weak. Hence, total input costs recorded their first decline since May 2013 as manufacturing posted its steepest slide in more than five years, and combined factory gate prices fell more quickly than in any month since February.

Regionally the strongest growth was seen outside of the core as business activity expanded at its fastest pace since last July. For the Germany (composite output index 52.6) growth accelerated slightly but in France (49.5) the economy again struggled to keep its head above water.

Not so long ago the ECB might have taken a cautiously optimistic view of today's survey results. However, it is the intensification of deflationary pressures that will attract the most official attention and the same issue will also dominate any reaction in financial markets. Yields on 10-year benchmark German bonds have already touched record lows this morning and will probably slip further over coming weeks.

The Eurozone PMI is produced by Markit and is based on original survey data collected from a representative panel of around 5,000 companies based in the euro area manufacturing and service sectors. National manufacturing data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The flash estimate is typically based on approximately 85 percent to 90 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.