EMU: PMI Composite FLASH

Fri Oct 23 03:00:00 CDT 2015

Consensus Actual Previous
Composite - Level 53.4 54.0 53.9
Manufacturing - Level 51.6 52.0 52.0
Services - Level 53.5 54.2 54.0

In the aggregate the Eurozone private sector economy looks to have performed marginally better in October than it did in September. However, the modest pick-up in growth indicated by a surprise 0.4 point rise in the flash composite output index (54.0) versus its final September reading masks a clear divergence between the manufacturing and service sectors.

Hence, while the flash service sector PMI unexpectedly rose 0.5 points versus its final September mark to a reasonably healthy 54.2, its manufacturing equivalent was only unchanged at a relatively lowly 52.0.

The manufacturing output sub-index dipped a tick to 53.3, a 5-month low and, in contrast to services, new orders slowed. A similar divergence was apparent in backlogs and also in employment where services saw a 5-month peak and manufacturing an 8-month low. Even so, service sector business expectations still dropped to a 10-month low.

Meantime, inflation developments will not have pleased the ECB. Input costs posted just a modest increase as a rise in services was in large part offset by the steepest drop in manufacturing in nine months. More importantly, combined output prices fell for the first time in three months.

For the core group, the German composite output index (54.5) gained 4 points and remained comfortably above its French counterpart which, at 52.3, also rose 0.4 points over the period. Business activity rates similarly picked up gently elsewhere in the region but remained short of the levels seen earlier in the year.

Overall today's findings should be consistent with quarterly Eurozone real GDP growth of around 0.4 percent. This remains too slow to provide the labour market with the boost it needs to make any real inroads into the unemployment problem and certainly not fast enough to impact inflation in any meaningful way. There is nothing here to dent expectations that the ECB will be adjusting its QE programme, and possibly even cutting interest rates again, in December.

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.