September's flash PMI was revised down 0.2 points to 52.3. The index duly remained above the 50 expansion threshold but, following a 53.0 final outturn for August, indicates some loss of momentum going into the new quarter.
New orders growth slowed last month but was still the second strongest in almost a year-and-a-half. Within this, exporters had another good period helped by a weak euro and improved demand from the U.S. Significantly, backlogs rose markedly and headcount continued to expand. Together these point to some build-up of pressure on capacity.
Even so, with input costs falling for a second consecutive month, and the most sharply since February, factory gate prices were still lowered for the first time in seven months. Business activity may be holding up well but firms clearly remain wary about increasing charges in what remains a very competitive market.
Despite September's dip, the average PMI for the third quarter (52.5) was the strongest in more than a year. In addition, with both new orders and, in particular, backlogs expanding at a healthy clip the omens are good for industrial output in the fourth quarter. To this end, it will be interesting to see how long it takes manufacturers to respond to what appears to be steadily diminishing spare capacity through a hike in output prices.
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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