EMU: PMI Manufacturing Index

Fri Apr 01 03:00:00 CDT 2016

Consensus Actual Previous
Level 51.4 51.6 51.2

Eurozone manufacturing performed a little better than originally thought last month. At 51.6, the final PMI was 0.2 points above its flash estimate and 0.4 points higher than its final February reading. That said, this was still the second weakest outturn in more than a year.

The modest improvement versus mid-quarter reflected slightly stronger growth rates in production and new orders. Employment was also up for a nineteenth successive month but at one of the slowest rates over the period. Inflation developments continued worryingly weak with fresh declines in both input costs and factory gate prices. Indeed, the drop in the former was almost as steep as the six and a half year record seen in February.

Regionally Ireland (54.9) was comfortably the best performer ahead of the Netherlands (53.6) and Italy (53.5). Spain (53.4) was not far behind. However, the core countries had a poor month with France (49.6) on the wrong side of 50 and Germany (50.7) only just on the right.

Notwithstanding the small positive revision to the headline PMI, today's results are disappointing. The first quarter Eurozone PMI was a modest 51.7, its weakest print since the same quarter in 2015 and likely indicative of a quarterly rise in manufacturing output of just 0.2 percent. At the same time, deflationary pressures remain severe.

Overall then the impression is not good. However, it is worth noting that the sector got off to a surprisingly good start to the year (January industrial production rose a hefty monthly 2.1 percent). The disconnect between the survey and hard data then may have carried through the rest of the quarter.

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.