The flash PMI was unrevised at 51.9 in June, up 0.8 points from its final May outturn. Today's report accordingly confirms an acceleration in business activity but only to a rate well below the levels seen at the start of the year.
Production was boosted by a sharp rise in consumer goods and new orders also showed renewed momentum. Still, the expansion rates of both remained below their long-run averages. More promisingly, backlogs were up for a fifth month in a row and companies continued to add to their payrolls.
Input costs rose for a third straight month and firms passed on some of this in the shape of higher factory gate prices.
At 51.7, the average PMI for the second quarter was essentially unchanged from the first quarter's 51.6 and so, on paper, indicative of no significant acceleration in economic growth. As such, today's report provides further evidence that the German economy is still underperforming earlier expectations.
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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