DE: PMI Composite FLASH

Fri Feb 20 02:30:00 CST 2015

Consensus Actual Previous
Manufacturing - Level 51.5 50.9 51.0
Services - Level 54.1 55.5 52.7
Composite - Level 54.3 52.6

The German economic recovery picked up a little momentum this month if the latest PMI results are anything to go by. The composite output index provisionally weighed in at 54.3, up 0.8 points versus its final January print and its strongest mark in seven months

However, the improvement was wholly attributable to services where the flash PMI gained 1.5 points to a 5-month high of 55.5. The comparable manufacturing index was only steady at January's final 50.9 and the manufacturing output sub-index actually slipped 0.3 points to 52.3.

Still, aggregate new orders saw their fastest growth in five months and backlogs were up for the first time in the last ten. Moreover, employment posted its strongest advance in more than three years as a gentle gain in manufacturing compounded a solid increase in services. Business optimism in services fell from its 45-month January high but the drop was only marginal.

Inflation news was mixed. Aggregate input costs predictably declined on lower oil prices but output prices rose and inflation here recorded its highest reading in eight months on the back of exchange rate factors and the introduction of the minimum wage.

Overall today's results are quite promising. Fourth quarter real GDP growth (0.7 percent) surprised comfortably on the upside and the signs are that total output will post another solid increase in the current period. The rise in output prices will also be more than welcome by Eurozone policymakers.

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.