EMU: PMI Composite FLASH

Tue Mar 24 04:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 53.6 54.1 53.5
Manufacturing - Level 51.5 51.9 51.1
Services - Level 53.9 54.3 53.9

Growth of the Eurozone economy accelerated in March according to period's flash PMI results. The key composite output index was provisionally put at 54.1, up from a final 53.3 in February, above market expectations and at its highest level in nearly four years.

The headline improvement reflected stronger performances by both the manufacturing and service sectors. The former's PMI climbed a surprisingly large 0.9 points to a 10-month peak of 51.9 while the latter was also up a stronger than anticipated 0.6 points at a 46-month high of 54.3.

New orders expanded again in both areas, total backlogs rose for a second successive period and employment grew at its fastest pace since August 2011. Meanwhile, deflationary pressures were again a feature but not as intense as in mid-quarter. Hence, while input costs climbed at their steepest rate in eight months, yet another drop in total output prices was only marginal and wholly attributable to a decrease in services. Manufacturers saw their first, albeit minor, rise in seven months.

The core countries both made fresh headway but faster growth in Germany (composite output index 55.3 after February's final 53.8) contrasted worryingly with a slowdown in France (51.7 after 52.2). Elsewhere in the region economic activity expanded at its fastest rate since last July and, more significantly, new orders growth registered its strongest increase since July 2007.

The March results suggest that the first quarter Eurozone economy is outperforming earlier expectations. Much of this has to do with the pick-up in momentum in Germany but most areas appear to be achieving increased momentum. The ongoing weakness of prices remains a key issue but even here there were at least tentative signs that the worst may be over. That said, it will take a sustained period of buoyant domestic demand growth to generate any meaningful upside pressure on consumer prices and unemployment is still too high to be confident that recent positive developments in retail sales will prove durable. For now it is good news but there is a long way to go yet.

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.