DE: PMI Composite FLASH

Thu May 21 02:30:00 CDT 2015

Consensus Actual Previous
Manufacturing - Level 52.3 51.4 51.9
Services - Level 54.0 52.9 54.4
Composite - Level 52.8 54.2

The German economy continued to slow this month if the latest flash PMI data are anything to go by. At 52.8, the key composite output index was 1.3 points short of its final April print and at its weakest level so far in 2015.

The headline decline reflected softer than expected outturns for both sector PMIs. The flash manufacturing index slipped 0.7 points to 51.4, a 3-month low, while its service sector equivalent was down a sharper 1.1 points to 52.9, a 5-month trough.

Slower growth was registered in overall new orders and output (52.7) would have been weaker but for a second consecutive decline in backlogs. However, it was not all bad news as May saw a slightly larger rise in employment than in April, courtesy of a pick-up in services. Even so, business expectations in services, while still relatively elevated, posted a 5-month low

Inflation developments continued positive. Hence, input costs increased for a third month in a row and firms felt comfortable enough about the level of demand to raise their output prices again. Indeed, output price inflation recorded its highest mark since January 2014.

While further signs of rising prices will be music to the ears of the ECB the slowdown in German growth is a worry. First quarter flash real GDP (0.3 percent) was disappointing sluggish and on current trends April-June is not shaping up any better. More of the same and the good news on prices could prove short-lived.

The Germany PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of 1000 companies based in the German manufacturing and service sectors. The flash estimate is based on around 85 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.