EMU: PMI Composite FLASH

Thu Apr 23 03:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 54.4 53.5 54.1
Manufacturing - Level 52.6 51.9 51.9
Services - Level 54.5 53.7 54.3

The Eurozone economy underperformed market expectations this month. At 53.5 the flash key composite output index was 0.5 points short of its final March print (an 11-month high) and, while crucially still on the right side of 50, at the lower end of forecasts and indicative of some slowdown in the rate of business expansion.

The dip in the headline index reflected unexpected falls in both the provisional manufacturing and services PMIs. The flash reading for the former was 51.9, off 0.3 points from its final March print, while at 53.7, the latter was 0.5 points short of its end of quarter mark.

New orders continued to rise but more slowly than in March. That said, the increase in services was the second quickest in nearly four years. Backlogs were up for a third successive month despite only stabilising in manufacturing where the output sub-index fell 0.5 points to 53.1. Indeed, overall job creation was the most marked since August 2011 thanks to solid gains in both sectors.

Input costs climbed at a rate only just shy of March's 8-month high but, despite some moderation, total output prices declined yet again due to fresh falls in services.

Within the core group, growth clearly slowed and the performance gap between the two countries continued to widen worryingly. Hence, in Germany the composite output index dropped to 54.2, but at least remained well above 50, while in France it slid to just 50.2, effectively pointing to economic stagnation. However, elsewhere across the region growth accelerated to its fastest pace since August 2007.

The apparent slowdown in Eurozone economic activity in April will disappoint the ECB, now into its second month of QE. Certainly there is nothing here to support any calls for an early tapering of the E60 billion a month bond buying programme. Still, any deceleration looks to have been relatively mild, new business is expanding and although output prices continue to head south, their rate of decline has eased significantly in recent months. For now a moderate recovery remains in place.

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.