The recovery in German manufacturing was a little slower than originally thought last month. At 51.1, the final sector PMI was 0.3 points short of its flash mark and a full point below its final April level.
Worryingly, growth of output and new orders was the weakest so far in 2015 with investment goods struggling just to maintain the previous period's level. Exports were up but only at a modest pace and would probably have been less buoyant but for the competitiveness gains provided by the soft euro. Still, backlogs accumulated further and at their strongest rate in just over a year and employment rose for an eighth successive month.
Input costs increased for a second consecutive month and the rate of cost inflation accelerated sharply and to its highest point since April 2012. As a result, factory gate prices were raised, but only marginally.
Overall, today's results are rather disappointing and suggest that the anticipated pick-up in manufacturing momentum this quarter will fail to materialise. Inflation developments appear to be moving in the right direction but even the upturn here is likely to prove short-lived in the absence of a sustained and meaningful recovery in domestic demand.
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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