Industrial activity contracted in May at much the same rate as indicated in the flash report according to the final PMI data for the month. At 49.4, the headline index was just 0.1 points above its earlier estimate and 1.4 points higher than its final April print. The latest reading was a 12-month peak.
As previously signalled, output and new orders declined at slower rates than at the start of the quarter, the fall in the former the smallest in twelve months and in the latter the least marked in thirteen. New export orders were up for the first time in more than a year. Even so, employment in manufacturing fell again and at a rate broadly unchanged from April.
Input cost inflation accelerated to its highest level in seventeen months but remained historically soft. At the same time, factory gate prices decreased for a fifteenth consecutive month against the familiar backdrop of highly competitive market pressures.
Today's data add little to the provisional report. The economy looks to be recovering at a very subdued rate and deflation risks are still too marked to be ignored.
The Purchasing Managers' Manufacturing Index (PMI) 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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