Eurozone manufacturing closed out 2015 on a relatively bright note. At 53.2, the final sector PMI was a tick stronger than its flash estimate and at its highest level since April 2014.
December saw the steepest rise in manufacturing production in more than a-year-and-a-half, supported by a stronger gain in new orders. Within the latter, new export business posted a 7-month peak. Backlogs accumulated at their fastest pace in almost two years which in turn contributed to a rise in employment that matched November's 3-month high. Nonetheless, price pressures were again minimal and, although slower in both cases, rates of change in input costs and factory gate charges remained in deflationary territory.
Regionally, the strongest performer was Italy (55.6 and a 57-month high) ahead of Ireland (54.2) and the Netherlands (53.4). Germany (53.2) also posted a multi-month high as did France (51.4) although the latter was still too close to the 50 mark to instil any confidence that the recovery is gaining any real momentum. Promisingly, with the Greek PMI weighing in at 50.2, all of the nations covered registered readings on the right side of the expansion threshold.
The December data mean that the average Eurozone PMI for the fourth quarter was 52.8, signalling the strongest gain in business activity since the first quarter of 2014. Moreover, with new business also accelerating, the near-term outlook would seem cautiously optimistic. Even so, inflation trends remain muted and unacceptably soft as far as the ECB is concerned. Against this backdrop, additional monetary accommodation at some point this year is still at least a possibility.
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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