EMU: PMI Composite FLASH

Wed Dec 16 03:00:00 CST 2015

Consensus Actual Previous
Composite - Level 54.2 54.0 54.4
Manufacturing - Level 53.0 53.1 52.8
Services - Level 54.0 53.9 54.6

There were no real surprises in the provisional December PMI report which suggested that Eurozone economic activity expanded at much the same rate as it did in November. A flash composite output reading of 54.0 was just a couple of ticks short of both the final mid-quarter print and market expectations and reflected a modest improvement in manufacturing that was just more than offset by a minor deterioration in services.

The flash manufacturing PMI weighed in at 53.1, fractionally stronger than the consensus and 0.3 points higher than its final mark last month. The comparable service sector measure was 53.9, only 0.1 points below market expectations and 0.3 points shy of its final November outturn.

New orders growth remained robust albeit down on last month's pace as a slower rate in services undermined the largest increase in manufacturing in twenty-one months. Indeed, manufacturing output posted its steepest gain in twenty months and overall backlogs and employment recorded their sharpest rises since May 2011. Business confidence in services also posted a 4-month high.

Nonetheless, inflation pressures remained modest. Hence, input costs were up just slightly in services and fell for a fifth straight month in manufacturing while aggregate output prices were cut for third month in a row.

Regionally within the core, the performance gap between France, where the composite output index dipped to just 50.3, and Germany, where it was off 0.3 points but at a respectable 54.9, widened again. Elsewhere, business activity climbed to a 4-month peak.

Overall today's results suggest that the Eurozone economy closed out 2015 on a reasonably firm footing and buoyant incoming demand, notably from overseas thanks to the weak euro, should be reflected in a decent start to 2016. However, the sluggishness of France is still a major headache and what looks likely to be around a 0.4 percent quarterly increase in the region's real GDP will not upset a still very subdued inflation outlook. The ECB cannot be overly pleased.

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.