EMU: PMI Composite FLASH

Fri Jul 24 03:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 53.9 53.7 54.1
Manufacturing - Level 52.5 52.2 52.5
Services - Level 54.1 53.8 54.4

Eurozone economic growth remained less than impressive in July if the latest flash PMIs are anything to go by. At 53.7, the composite output index provisionally fell 0.5 points versus its final June mark and, while still on the right side of 50, undershot market expectations.

Both sectors saw some deceleration in business activity with the flash manufacturing PMI 0.3 points weaker at 52.2 and the service sector gauge off a steeper 0.6 points at 53.8.

Worryingly, new business expanded at its slowest pace in five months, mainly due to a smaller rise in manufacturing. Backlogs were up for a fifth time in the last six months but employment was mixed with manufacturing registering its strongest gain since April but headcount growth in services recording a 6-month trough. Input cost inflation eased to a 3-month low and while manufacturers raised charges for a third time in four months, service providers cut output prices for a remarkable forty-fourth consecutive time.

Within the core, growth of private sector output slowed in both France (51.5 after 53.3) and, to a much lesser extent, Germany (53.4 after 53.7). However, the rest of the region saw increased momentum and widened its performance gap further versus the two largest members.

July looks to have been a moderately respectable period for the Eurozone economy but the slowdown in growth and orders as well as the ongoing slide in service sector prices will not sit well with the ECB. The Greek crisis probably weighed to some extent (the survey sample period was 13th-23rd July) but it is not clear than it had a major impact. Another fall in the composite output index in August could well set some alarm bells ringing.

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.