EMU: PMI Composite

Fri Nov 04 04:00:00 CDT 2016

Consensus Actual Previous
Composite - Level 53.7 53.3 52.6
Services - Level 53.5 52.8 52.2

The flash October composite output index was disappointingly revised down 0.4 points to 53.3 in the final report. This reduced its gain versus its final September reading to 0.7 points.

The downward adjustment was wholly attributable to a weaker services sector where the flash PMI was cut by 0.7 points to 52.8, although this was at least still 0.6 points above its reading in the previous month. Growth of new orders accelerated to a 3-month peak and backlogs were also up at their fastest pace since June. As a result, employment continued to expand and October's rate was slightly above that in September. Moreover, in rising to a 6-month high, business optimism climbed above its long-run average.

Inflation news was again mixed with input costs increasing at the fastest pace in three months but service provider prices still lowered once more.

Divergence in the core was again a feature with the German composite output gauge rising a solid 3.3 points to 55.1, the best performance across the region, but its French counterpart slipping 1.1 points to 51.6. Elsewhere, Spain (54.4) and Ireland (54.0) saw decent activity rates but Italy (51.1) was again worryingly close to stagnation.

In sum, the Eurozone economy appears to have got off to a respectable, if hardly sizzling, start to the fourth quarter. Real GDP looks set for quarterly growth of 0.3-0.4 percent, essentially implying no improvement from the previous two quarters. Germany seems poised for a decent run but France and Italy are lagging too far behind for comfort and, in the aggregate, prices are just trending sideways. The door to further ECB easing remains open.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by Markit using a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.