EMU: PMI Composite FLASH

Mon Nov 23 03:00:00 CST 2015

Consensus Actual Previous
Composite - Level 53.9 54.4 54.0
Manufacturing - Level 52.1 52.8 52.0
Services - Level 54.0 54.6 54.2

Economic activity in the Eurozone private sector seemingly gained some unexpected momentum in November. At a usefully stronger than expected 54.4 the flash composite output index was 0.5 points above its final reading at the start of the quarter and at a 54-month high.

Promisingly too, the headline rise reflected improvements in both the manufacturing and service sectors. Hence, the former's flash PMI gained 1.5 points versus its final October mark to a 19-month peak of 52.8 while services saw a 0.5 point advance to 54.6, its best reading in four and a half years.

Of particular note, the November report showed a solid increase in overall new business with both sectors registering multi-month highs. Backlogs were also up sharply despite the smallest gain in manufacturing since July. There was similarly good news on employment which expanded at its most robust rate in 54 months, largely reflecting a 5-year peak in services.

Nonetheless, good news on the real economy was not mirrored in prices where a fractional increase in input costs was not enough to prevent a slight decline in output charges.

Regionally, the core countries were very mixed with a 1.1 point drop in the provisional French composite output index to a lowly 51.3 contrasting with a tidy 0.7 point rise in its German counterpart to a respectable 54.9. However, it was the rest of the Eurozone that outperformed and output growth here was the second strongest since the Great Recession.

Had it not been for the persistent weakness of prices, the ECB would probably have been cautiously content with today's survey results. At around 0.5 percent, the quarterly increase in Eurozone real GDP suggested here for October-December may not be overly robust and heavily reliant on services. However, it would still equal the strongest gain since the recovery began back in the second quarter of 2013 and buoyant new orders and healthy employment gains bode well for early next year.

The problem is that none of this seems to be impacting inflation which, given the ECB's remit, means that another round of monetary easing in December remains very firmly on the table.

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.