FR: PMI Composite FLASH

Tue Jun 23 02:00:00 CDT 2015

Consensus Actual Previous
Manufacturing - Level 49.7 50.5 49.3
Services - Level 52.9 54.1 51.6
Composite - Level 53.4 51.0

The flash June PMIs exceeded expectations and, in contrast to the newly released INSEE survey, suggest that economic activity picked up some momentum this month.

The key composite output index gained 1.4 points to 53.4, its highest level in some forty-six months and far enough above the 50 mark to indicate a solid period for private sector economic growth. The rise was attributable to stronger performances in both the manufacturing and service sectors with the PMI for the former provisionally rising 1.1 points to 50.5 and the latter up 1.3 points at 54.1.

Actual output was only unchanged in manufacturing but even this was a marked improvement after twelve successive months of decline. Overall new business increased for a seventh straight month, although this masked a slight fall in the goods producing sector, and backlogs climbed across the board. Total employment recorded its fourth increase in as many months but, again, this hid another contraction in manufacturing payrolls. Meantime, business expectations in services advanced to a 39-month high.

Aggregate input costs saw a fifth consecutive monthly rise but output prices fell yet again, albeit at their slowest pace for nine months in both sectors.

Overall the PMI surveys make for cautiously optimistic reading. The return to positive growth in manufacturing is particularly good news even if, at this stage, it remains anaemic. Recovery in services sector is also less than dynamic but looks to be becoming increasingly well established.

Second quarter real GDP growth still looks unlikely to match the 0.6 percent recorded in January-March (final data tomorrow) but respectability now seems much more likely than just a month or two ago. Even so, economic momentum remains too sluggish to accommodate higher prices despite rising input costs so the French recovery has a long way to go yet.

The PMI is produced by Markit Economics and is based on original survey data collected from a representative panel of 750 companies based in the French 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.