Business activity in German manufacturing expanded a little more quickly than previously estimated in February. The final PMI stood at 51.1, a couple of ticks stronger than signalled by the flash figure and also two ticks above the final January mark.
February's modest improvement was largely attributable to a sharper increase in new orders which expanded at the fastest rate in seven months. Exports also showed some improvement but the increase in total orders was still soft by historical standards. Even so, some signs of capacity pressures were apparent in backlogs which rose more quickly than at any time in the last four months. Employment growth was only marginal but this may reflect skills shortages in selected areas.
Input costs fell again and markedly on the back of lower oil prices. More significantly, factory gate prices were down for a fourth successive month although at the slowest rate over the period.
At 51.1, February's PMI points to a somewhat sluggish increase in manufacturing activity and growth would certainly seem to be well below the levels seen early last year. Still, with the help of weaker oil prices and a lower euro, German businesses should perform better over coming months to the benefit of both the national and Eurozone economies.
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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