FR: PMI Composite FLASH

Fri Jan 23 02:00:00 CST 2015

Actual Previous Consensus
Composite - Level 49.5 49.1
Manufacturing - Level 49.5 47.9 48.1
Services - Level 49.5 49.8 50.8

If the new PMI findings are anything to go by, the French economy failed to pick up any momentum at the start of 2015. At 49.5, the flash composite output index slipped a couple of ticks below its final December print to signal another marginal decline in private sector activity.

The latest headline contraction reflected quite sharply different developments in the two main sectors. Hence, while the manufacturing PMI rose two points to 49.5, an 8-month high, its service sector counterpart dropped from a final 50.6 at year-end to also 49.5.

Manufacturing output (49.3 after 45.6) continued to fall but at a much slower pace than in the previous month but while services saw a rise in new business, in goods producing new orders fell again with export demand down at its sharpest pace in some nineteen months. Similarly, a modest increase in backlogs in services contrasted with a decline in manufacturing. Meantime, aggregate employment dropped for a fifteenth successive month but at its slowest rate since March 2014 and business expectations in services, although still below their long-run norm, climbed to a 10-month peak.

Crucially however, inflation news was again very soft. Thus private sector input costs fell for the first time in twenty months and both service provider charges and factory gate prices were down versus December.

Although the details of today's surveys suggest that the economy may be stabilising, deflationary pressures are still building and this is precisely the problem that yesterday's aggressive ECB ease will hoping to tackle.

The PMI is produced by Markit Economics and is based on original survey data collected from a representative panel of 750 companies based in the French 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.