German manufacturing outperformed original estimates in March. At 52.8, the final reading for last month was 0.4 points higher than the flash estimate and a tidy 1.7 points above its final February mark. The latest print signalled the fastest growth of business activity in the sector since April 2014.
The headline improvement was in large part attributable to a sharp rise in production but growth of new orders also accelerated within which export business apparently benefited from the slide in the value of the euro. Backlogs accumulated for a second successive month, potentially signalling a rise in capacity utilisation pressures and employment was up again, albeit only slightly.
Input costs fell at a slower rate than in mid-quarter but, significantly, companies raised their factory gate prices for the first time since last October.
The recovery in manufacturing gained some momentum during the course of the first quarter and rising new orders and backlogs suggest that the second quarter should again be relatively buoyant. However, at least as interesting will be the future trend in selling prices amidst signs that the combination of euro weakness, labour market tightness and the introduction of a national minimum wage might finally be starting to exert some upward pressure on inflation.
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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