EMU: PMI Composite FLASH

Wed Sep 23 03:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 53.9 53.9 54.1
Manufacturing - Level 51.9 52.0 52.4
Services - Level 54.1 54.0 54.3

The Eurozone economy had a moderately respectable September according to the findings of the provisional PMI report. The flash composite output index fell 0.4 points from its final August level to 53.9, matching market expectations and still far enough above the 50 mark to signal a decent pace of expansion.

Even so, the manufacturing PMI provisionally slipped 0.3 points to 52.0, a 5-month low as output growth eased to a 4-month trough and new orders, despite a continued robust rate of expansion, slipped from August's 16-month high. Sector headcount was up again, albeit by the smallest amount since February, and potentially significantly, backlogs saw their steepest gain since April 2014. However, input costs were down sharply and, ominously, factory gate prices declined for the first time in half a year.

Meantime, the flash services PMI was 0.4 points short of August's final print at a still solid 54.0. The rise in new business recorded a 5-month peak and growth of backlogs was the fastest since May 2011. Despite this, employment saw its smallest increase in eight months. Input cost inflation was little changed and output prices were finally raised for the first time since August 2011.

For the core countries it was the familiar story of a decent performance by Germany (composite output index 54.3) and, despite some improvement, continued underperformance by France (51.4). Still, the rest of the region enjoyed faster growth than both, even if September's rate eased to a 3-month low.

For the Eurozone as a whole, the average composite output index this quarter provisionally stands at 54.0, its best reading since the second quarter of 2011. Rising new orders, backlogs and employment all suggest that the economy had some decent momentum to start the fourth quarter. However, recent surveys have tended to be rather optimistic and, crucially, at the aggregate level, inflation only seems to be moving sideways. Today's report will not dent speculation about additional QE from the ECB.

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.