EMU: PMI Manufacturing Index

Mon Aug 03 03:00:00 CDT 2015

Consensus Actual Previous
Level 52.2 52.4 52.5

The final PMI report for July suggests business activity in manufacturing expanded at much the same rate as in June. Hence, at 52.4, the revised index was a couple of ticks higher than originally estimated and just 0.1 points below its final June outturn.

Growth of manufacturing output was in line with March's 10-month peak for a second successive month, boosted by stronger new orders from domestic and overseas markets alike. Backlogs rose marginally and employment was also up for an eleventh straight month. Input costs climbed for a fifth month running but the increase was relatively shallow and there was only a fractional gain in factory gate prices.

Nationally, the best performer was the Netherlands (56.0) ahead of Italy (55.3 and a 51-month high). Spain (53.6) also had a reasonable month despite hitting a 9-month low but the core again disappointed with both France (49.6) and Germany (51.8) either below or too close to the 50 mark for comfort. Also of note, the economic crisis in Greece was highlighted by a PMI of just 30.2, a new record low and some 7.5 points beneath the previous trough seen in February 2012.

The July results signal a continued sluggish recovery in Eurozone manufacturing activity at the start of the third quarter. Greece almost certainly had some negative impact but underlying momentum is still slow and the core is underperforming. The risk of deflation may have eased somewhat but there is nothing here to put a smile on the face of the ECB.

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.