EMU: PMI Composite FLASH

Thu May 21 03:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 53.7 53.4 53.5
Manufacturing - Level 52.1 52.3 51.9
Services - Level 54.0 53.3 53.7

Eurozone economic activity slowed a little faster than expected this month. At 53.4, the flash composite output index was down a sharper than anticipated 0.5 points versus its final April reading and, while still comfortably on the right side of 50, at its lowest level in three months.

The headline damage was caused by services where the flash PMI dropped nearly a point to a 4-month trough of 53.3. Manufacturing activity (52.3 after 52.0) actually accelerated modestly.

Growth of aggregate new business eased again as new demand for services recorded its lowest rate in three months and total backlogs were only broadly stable. Business expectations in services declined to a 5-month trough but overall employment increased at its strongest rate in some four years.

Higher energy bills helped input cost inflation to hit a 37-month peak but margins continued to be squeezed as highly competitive market conditions saw output charges essentially flat at their April level.

Developments in the core group were disappointing again. Hence, although the French composite output index edged slightly higher to 51.0, its German counterpart shed more than a point to a 5-month low of 52.8. Consequently, it was the rest of region that did much to support the overall Eurozone economic recovery and the non-core group of countries looks on course for its best quarterly performance since 2007.

Today's results are something of a mixed bag but a second successive slowdown in aggregate economic activity cannot be good news. Employment is at least heading in the right direction but decelerating orders suggest that the hoped for pick-up in growth is not just around the corner and deflation risks remain significant. The ECB needs to stick to its full QE programme and its decision to front-load asset purchases in May and June now looks all the more appropriate.

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.