German manufacturing activity grew at a marginally stronger rate than originally estimated in August. The final sector PMI was 53.3, up just a tick from both its flash estimate and its final reading in July.
Output expanded at its fastest rate in five months and was reassuringly broad-based across all three major market groups. There was also a fresh advance in new business which accelerated versus July to register its strongest gain since April 2014. Improvements were seen in both the domestic and overseas market. At the same time, an increase in backlogs was the sharpest in one-and-a-half years which in turn prompted the largest gain in the sector's payroll since January 2012.
Input costs fell for the first time in five months, largely on the back of weaker energy. Even so, firms continued to raise their factory gate prices and the latest hike was the steepest in a year.
August's PMI was a 16-month high and suggests that German manufacturing was in decent shape in mid-quarter. Moreover, with solid growth of new business from both home and abroad, there should be scope for respectable gains in industrial production over coming months. While early days yet, real GDP could surprise on the upside this quarter.
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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