EMU: PMI Composite FLASH

Fri Feb 20 03:00:00 CST 2015

Consensus Actual Previous
Composite - Level 53.0 53.5 52.6
Manufacturing - Level 51.4 51.1 51.0
Services - Level 53.0 53.9 52.3

Eurozone economic activity showed some welcome signs of acceleration this month. The flash composite output index weighed in at a slightly higher than expected 53.5, a 0.9 point rise versus its final January reading and its strongest mark in seven months.

Growth was dominated by services where the PMI was provisionally put at 53.9, also a 7-month peak, and 1.2 point gain over its final January level. Manufacturing (51.1) was up just 0.1 points although even here the flash PMI similarly achieved its best print in more than half a year. The sector's output sub-index was 52.2 after 52.1 last time.

Aggregate new orders continued to expand, particularly in services, and, somewhat surprisingly, capacity shortages were severe enough to prompt the first increase in backlogs since last April. As a result, firms were forced to add to headcount and overall employment climbed at its steepest rate since August 2011. Service sector business expectations were the most optimistic since May 2011 and manufacturers' orders/inventory ratio hit a 7-month peak.

Even so, inflation developments were again soft, albeit not as weak as in January. Thus, input costs fell at a slightly reduced pace versus the start of the year and the rate of decline in selling prices similarly eased a little. Even so, the latter has still been falling continually for the best part of three years now.

Regionally developments within the core were mildly reassuring with a return to positive growth in France (composite output index 52.2) compounded by another respectable performance by Germany (54.3). Elsewhere economic activity also expanded but at a somewhat slower rate than January's 6-month's high.

Outside of the ongoing slide in output prices today's PMI findings make cautiously optimistic reading and suggest that the Eurozone economy was probably on the turn before the ECB decided to launch its QE initiative. Even so, what looks likely to be growth of around 0.3 percent this quarter would be nothing to write home about and should prices continue to fall, the consumer sector could yet undermine the recovery by deferring its would-be spending. QE cannot come fast enough.

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.