French manufacturing slightly underperformed original expectations in December. At 51.4, the final PMI was down 0.2 points from its flash estimate but still 0.8 points above its final November reading and so indicative of a modest acceleration in business activity. The latest outturn was also a 21-month high.
As previously indicated, December saw a fourth consecutive increase in output, although growth was only very slow, and new orders were up for a third straight month. Backlogs registered their first advance of the quarter but, again, the rate of expansion was modest. Employment ended a 20-month period of contraction with a minimal gain.
Input prices dropped for a fourth successive month and, more significantly, factory gate prices extended their trend decline that began back in March 2014.
Despite its strongest print in nearly two years, the year-end manufacturing PMI suggests that the recovery in the French goods producing sector is still struggling to gain any real traction. The forward looking indicators also argue against anything much better this quarter.
The Purchasing Managers' Manufacturing Index (PMI) 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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