The final German manufacturing PMI weighed in at 50.9, just a tick short of its flash estimate and only 0.3 points down on its final December reading. The implication is that business activity continued to expand at the start of 2015 but growth was only very modest.
Output developments were positive for a twenty-first successive month but, despite hitting a 3-month high, growth remained below the series' long-run average. Similarly new orders also gained further ground but the rate of expansion here was marginal and also well below that seen at the start of 2014. The weakness of overseas demand was a problem and export orders posted a fractional decline. That said, firms added to headcount, albeit at a fairly minimal rate possibly reflecting the increase in labour costs associated with the introduction of a new minimum wage. Indeed, backlogs fell for the second time in the past three months.
Inflation developments were again very soft. Input costs continued to fall on the back of lower energy prices and saw their steepest decline since the middle of 2009. In turn, factory gate prices were reduced for a third month running and at their sharpest pace since July 2013.
The final January PMI results describe a relatively lacklustre German manufacturing sector. Actual output would appear to be expanding at a rather modest pace and the upswing in new orders has flattened sufficiently to suggest that future production gains will be little stronger. At the same time, as already highlighted in January's provisional CPI report, deflationary pressures are still very apparent.
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.
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